* ONLF faction says war is now "destructive"
* Rival rebel wing calls agreement "irrelevant"
* Petronas to sell off assets in contested region
By Barry Malone
ADDIS ABABA, Oct 12 (Reuters) - Ethiopia signed a peace deal on Tuesday to end 20 years of war with a rebel faction that has comprised the main threat to foreign oil and gas firms in the disputed Ogaden region, both sides said.
Abay Tsehaye, national security adviser to Prime Minister Meles Zenawi, welcomed the signing of the deal as something that would strengthen unity in the Horn of Africa country.
But the spokesman for a rival wing in the fractious Ogaden National Liberation Front (ONLF) run by former Somali navy chief Admiral Mohamed Omar Osman called the deal "irrelevant", raising questions about its breadth and staying power.
The ONLF has sought independence for the mainly ethnic Somali province. The faction with which Addis Ababa sealed the deal says it represents 80 percent of fighters who have menaced energy stakes in the Ogaden, which borders Somalia.
"We are happy to sign a peace deal with the Ethiopian government," Selahadin Mao, who says he leads the largest ONLF faction, told a news conference. "We have come to understand the destructive nature of war and that war is not the only solution. We need the Ogaden region to develop and to prosper."
The deal was dismissed by Abdurahmin Mohammed Mahdi, spokesman for the Osman group in the ONLF.
"These are just people claiming to be us who don't even operate in the region. Selahadin Mao was expelled from the ONLF for embezzling funds," Abdurahmin told Reuters.
"There are no factions. We have always been the ONLF," Abdurahmin told Reuters, and he reiterated a threat to foreign exploration firms.
"Any company that comes to the Ogaden and wants to take our oil must ask for our permission first," he said. "If they don't ask for our permission, and are protected by Ethiopian soldiers, we will consider them as combatants."
Abaye, Meles' aide, touted the peace accord, saying it was "a result of the relentless efforts of the people who rightly decided to opt for peace and development rather than for hopelessness and endless war".
The Osman group claimed responsibility for a 2007 attack on on an oil exploration field owned by a subsidiary of China's Sinopec Corp (600028.SS) that killed 65 Ethiopian soldiers and nine Chinese oil workers, and many other numerous attacks on the Ethiopian military over the last three years.
The Ethiopian government has acknowledged skirmishes with the rebels over the past year, but regular claims of battle victories from both sides are hard to verify. Journalists cannot move in the area without government escorts.
Ethiopian forces waged an offensive against the rebels in late 2007 after the ONLF attack on the Sinopec site.
Malaysia's state-owned Petronas [PETR.UL] has asked Ethiopia for government approval of a deal to sell all its oil and gas concessions in the Ogaden to locally owned SouthWest Energy (H.K.) Ltd. [ID:nLDE69A1R3]
Analysts say the rebels were weakened after the 2007 fighting and, while not capable of ousting the government, can launch hit-and-run attacks.
The separatist cause gained momentum due to a low level of development in the impoverished region. Until Chinese engineers arrived in 2007, the entire area of 200,000 sq km had only 30 km (20 miles) of tarmac road. (Editing by Mark Heinrich)