TEGUCIGALPA - Renewed talks to resolve Honduras' deep political crisis collapsed on Friday over whether leftist President Manuel Zelaya could return to power after he was toppled in a June coup.

This is the second time envoys of the ousted President -- who returned to Honduras last month to take refuge in the Brazilian embassy -- and de facto leader Roberto Micheletti have tried and failed to reach a negotiated settlement.

As of now we see this phase as finished, Zelaya envoy Mayra Mejia said, referring to the dialogue shortly after midnight (2 a.m. EDT/0600 GMT).

Earlier talks mediated by Costa Rican President Oscar Arias, and backed by the Organization of American States, also broke down in a stalemate.

Zelaya's camp earlier set an ultimatum for Micheletti's team to present a new offer and pledged to walk away from the table if the proposal did not include Zelaya's return to office.

The fundamental point is the reinstatement of President Zelaya and for this, there was no political will, Mejia told reporters in the lobby of the Tegucigalpa hotel where both sides have been debating for three weeks.

Mejia said the team would meet with Zelaya in Brazil's embassy to plot their next move.

Soldiers rousted Zelaya from his bed and sent him to Costa Rica on June 28 after he upset business leaders, the military and politicians in his own party by moving Honduras closer to Venezuela's socialist President Hugo Chavez.

His critics say violated the constitution in a bid to allow for presidential re-election, a charge he denies.

Honduras is a headache for U.S. President Barack Obama, who is aiming for better relations with Latin America. Even after the State Department revoked a new round of visas from key coup leaders this week to push Micheletti toward a deal, critics say the United States is not doing enough.

The de facto government is trying to drum up support for a November 29 election as the only way to resolve the crisis even as human rights groups worry recent clampdowns on pro-Zelaya media and protests would make a free and fair election impossible.

The campaign is in full swing, with candidates hoping to take office in January avoiding direct questions about Zelaya's return.

Micheletti's negotiators insist they are still open to dialogue and will present a new proposal to Zelaya on Friday morning. Zelaya says it is just a play for time and Micheletti has not intention of stepping down.

Zelaya returned secretly a month ago and has been camped out in the heavily guarded Brazilian embassy with his family and a handful of supporters and journalists.

One night this week, the army set up giant speakers outside to blast the compound with loud, grating noise ranging from rock music to pig grunts.

And the police ordered new restrictions on protests in an effort to clamp down on near daily rallies to support Zelaya. Police and soldiers broke up several previous anti-coup marches with tear gas and rubber bullets, leaving at least two protesters dead.
(Additional reporting by Adriana Barrera, Gustavo Palencia and Ines Guzman; editing by Todd Eastham)

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