BAGHDAD (Reuters) - Division and infighting within Iraq's ruling Islamist Shi'ite alliance could leave its nominee for prime minister politically paralysed as he tries to rescue a country torn apart by sectarian fighting.

After weeks of heated debate, the United Iraqi Alliance (UIA), the biggest bloc in parliament, resorted to a vote before nominating incumbent Ibrahim al-Jaafari as prime minister of the next government, two months after December 15 elections.

Jaafari, a leader of the Dawa party, won by only one vote over Adel Abdul Mehdi, a senior figure in rival party the Supreme Council for the Islamic Revolution in Iraq (SCIRI). With such a slim mandate, stitching together a cabinet could prove a huge struggle, further straining relations with the UIA bloc.

Jaafari's efforts to form a government will need sensitivity as he tries to keep Shi'ite factions happy, while satisfying Kurds who have accused him of monopolising power and reaching out to Arab Sunnis who are key to defusing the Sunni insurgency.

Political analysts say the cautious Jaafari must make bold decisions that will send a strong signal to factions inside his own alliance as well as Sunnis, who have gained 58 of the 275 seats in parliament after boycotting last January's election.

"Jaafari needs to create a government of technocrats. Most of all you need them in the key places such as the Interior Ministry. Secularists who have no sectarian agenda," said Hazim al-Nu'amy, a professor at Baghdad's Mustansiriya University.

That won't be easy for a leader whose approach to crisis during his first, 10-month term was quiet diplomacy followed by sweeping government promises and little progress.

Control of the Interior Ministry is likely to be one of the toughest battles as Jaafari shapes Iraq's first full-term government since the fall of Saddam Hussein in 2003.

It is controlled by SCIRI, the pro-Iranian party linked to the Badr Brigades militia, which Sunnis accuse of running death squads sanctioned by the Shi'ite-led government. The government denies the accusations.

Jaafari has vowed to crack down on abuses but that could require politically risky action against militias tied to members of his Shi'ite alliance.

Highlighting the problems ahead, government spokesman Laith Kubba said this week that the current political system which allows parties to carve up ministries makes it impossible for Jaafari to take control of the Interior Ministry.

SUNNIS KEY TO STABILITY

Loosening the grip of Shi'ite and Kurdish parties on ministries is crucial to winning over Sunnis, who accuse SCIRI of pursuing a sectarian policy of giving the best positions to its members and squeezing out minority Sunnis.

SCIRI, highly unpopular among many Sunnis for its close ties to former foe Shi'ite Iran, denies the accusations.

Some of its members play down splits in the Shi'ite alliance, which also includes cleric Moqtada al-Sadr, a former rebel leader who has rebelled against U.S. and Iraqi troops.

Jaafari is backed by Sadr but the young firebrand has always been unpredictable.

"There are many difficulties but I think we can overcome them. Remember this was an interim government and there are problems. This is not Switzerland," said Reda Jiwaad Taki, a member of SCIRI's political committee.

Jaafari, for his part, has offered little hard evidence of how he intends to tackle daily suicide bombings and shootings and revive a battered economy that few investors will touch.

"We are going to continue to build the security forces and stabilise the political situation. We are going to work on forming a strong government to enhance their performance as they work as a group," he told a news conference this week.

His promises provide little comfort to people like Nazhan Alwaan in the town of Balad north of Baghdad.

After gunmen killed eight of his relatives on Tuesday, including his five-year-old nephew, Alwaan concluded that he was targeted simply because he was a Shi'ite.

"We don't have any relations with the Americans, we are not contractors, we don't know the police or army, so what else could it be?" he asked.

Sectarian tensions have been fuelled in part by debate over the constitution. The Sunni minority want amendments made to sections on federalism they fear give Shi'ites and Kurds too much power and control of Iraq's oil riches.

A strong central government may be what Jaafari needs to help stabilise the country. But it may not be possible under the existing constitution.

"All observers are critical that it creates a very weak central government. The local governments enjoy semi-autonomy and there is the question of spreading revolts," Lakhdar Brahimi, U.N. architect of the political process leading to elections in Iraq, told Asharq al-Awsat newspaper.

"All of this could lead to the breakup of the country and a continuation of present divisions instead of ending them."