* Government side in talks less optimistic
* Rebellion has displaced half a million people
* M23 rebel leaders under U.N. sanctions
By Elias Biryabarema
KAMPALA, Feb 1 (Reuters) - Congolese rebels said they expected to sign a peace deal with the government by the end of February that would end their ten-month revolt, but Kinshasa said "capricious" demands from the rebels could cause delays.
The M23 rebels have carved out a fiefdom in eastern Congo's North Kivu province that has dragged Congo's eastern region back into war and displaced an estimated half a million people.
Bertrand Bisimwa, spokesperson for the rebels and a participant in the talks, said negotiations had already covered substantial ground.
"We still have a lot of business to cover but if we keep this speed I think it's possible by end of February we'll have finished talks and signed an agreement," Bisimwa told Reuters in Kampala.
"We're satisfied with the speed of negotiations."
Government spokesman Lambert Mende was less optimistic.
"We were hoping to have things finished by the end of February but M23 have made lots of capricious extra demands, which is slowing down the process," Mende told Reuters.
The Kampala talks aim to bring the rebels and Kinshasa closer on a wide range of economic, political and security issues dividing the two sides, including amnesty for "war and insurgency acts", the release of political prisoners and reparation of damages due to the war.
The M23 rebels, who launched their offensive after accusing President Joseph Kabila of reneging on the terms of a March 2009 peace agreement, have since broadened their goals to include removal of Kabila and "liberation" of the entire Congo.
"We have to get through these quickly, as we have much more important things to discuss," Mende said, but added: "One can say we're happy with the progress."
The rebels agreed to the peace talks in December after the International Conference on the Great Lakes Region pressured them into pulling back from North Kivu's capital, Goma.
M23 has come under additional pressure after reports that U.N. Secretary General Ban Ki-moon will recommend to the Security Council that a peace enforcement unit be deployed in eastern DRC. Peace enforcement missions can use lethal force in serious combat institutions, whereas peacekeeping operations are intended to support and monitor a ceasefire.
Foreign powers fear the conflict in eastern Congo could trigger another regional war in a borderlands zone that has suffered nearly two decades of turmoil.
Successive cross-border conflicts have killed and uprooted millions in the Congo basin since the colonial era, driven by political and ethnic divisions and competition for vast mineral resources.
Independent U.N. experts say the M23 insurgency receives cross-border support from Rwanda and Uganda, which both governments strongly deny.
In December the U.N.'s sanctions committee blacklisted two key M23 leaders, Eric Badege and Jean-Marie Runiga Lugerero on grounds the rebel group has been complicit in "killing and maiming, sexual violence, abduction, and forced displacement" of people in eastern Congo. They now face international travel bans and asset freezes. (Additional reporting by Jonny Hogg; Editing by Drazen Jorgic and Sonya Hepinstall)