Tunisia's main political parties failed to agree on forming a non-partisan cabinet to tackle turmoil triggered by the assassination of an opposition leader, Prime Minister Hamadi Jebali said on Monday.
But he said efforts would continue to form a government supported by most parties in the North African state that spawned the slew of popular uprisings against dictatorship across the Arab world two years ago.
Tunisia was pitched into crisis last week after leading secular opposition politician Chokri Belaid was gunned down outside his home in Tunis, touching off mass protests targeting in part the ruling moderate Islamist party.
"The initiative for a cabinet of technocrats did not receive full political consensus and has failed...But work is continuing with all parties to form a government which has the agreement of most of the political parties," Jebali told a news conference.
He spoke after a meeting with leaders of secular political parties and his own Islamist Ennahda party, which has denied any involvement in Belaid's killing.
Jebali suggested a cabinet of apolitical technocrats to help restore calm and guide Tunisia to elections. He had threatened to quit if his proposal failed but on Monday he said only: "I will meet the president tomorrow to discuss the next steps."
The political crisis has disrupted efforts to revitalize an economy that was hard-hit by the disorder that followed the overthrow of veteran strongman Zine al-Abidine Ben Ali in 2011.
Tunisia has been negotiating with the International Monetary Fund for a $1.78 billion loan, and politicians said Jebali's inability to re-establish a functioning government was retarding economic rebuilding efforts.
"The political and economic cost of this failure will be expensive especially that the country's economy is in a difficult situation and the governance crisis will deepen doubt," Issam Chebbi, a secular Republican party leader, said.
Jebali's own Ennahda party rejected his idea of a technocratic government.
Ennahda party chief Rached Ghannouchi told Reuters it was essential that Islamists and secular parties shared power now and in the future. "Any stable rule in Tunisia needs a moderate Islamist-secular coalition," he said.
Ghannouchi said Ennahda might compromise over control of portfolios such as defense, foreign affairs, justice and interior. "We are ready to discuss all ministries, including sovereign ones, in a new coalition government."
Violent protests, in which one policeman was killed, swept Tunisia after Belaid's assassination, with crowds attacking Ennahda offices in Tunis and elsewhere. Tens of thousands of people turned out for the slain leader's funeral on Friday.
Tunisia's political transition has been more peaceful than those in other Arab nations such as Egypt, Libya and Syria. But tensions are smouldering between Islamists elected to power and liberals who fear the loss of hard-won liberties.
(Reporting By Tarek Amara; Editing by Mark Heinrich)