* Government says no crisis to warrant opening talks
* Veteran politician lost 2013 presidential race
* Odinga wants timetable to pull out troops from Somalia
* Tensions re-open deep rifts that worry some in West
By Edmund Blair
NAIROBI, June 24 (Reuters) - Kenya's veteran opposition leader demanded on Tuesday a national dialogue by July 7 and sought a timetable to pull Kenyan troops out of Somalia, hours after a fresh attack on the coast killed five people.
Raila Odinga, who was President Uhuru Kenyatta's main challenger in last year's election, has called for nationwide rallies next month over what he said were public worries that include security failings, corruption and rising living costs.
His comments have set him on a collision course with the government, which has dismissed the deadline as a bid by the 69-year-old former prime minister to create a crisis that will haul him back to the centre of politics in the east African nation.
Both sides may be playing with fire, say diplomats and analysts, in a nation where political loyalties tend to follow ethnic lines and rivalries have flared before, notably after the contested 2007 election when tribal violence left about 1,200 dead.
Diplomats, worried about a nation that is the West's ally in the fight against militant Islam, have called for cooler heads.
"We have given them a deadline by which time we must have dialogue and this is July 7," Odinga told Reuters in an interview at his Nairobi office. The date is symbolic: "Saba Saba" in Swahili, or 7/7, is when opponents of former autocrat Daniel Arap Moi launched a bid in 1990 to open up politics.
Odinga did not spell out consequences if his demand was not met, but said he would continue rallies across the country that began on May 31, when he returned from three months abroad.
Attacks around Mpeketoni on the coast last week that killed about 65 people have further stoked tensions.
Somali Islamists said they were responsible, but Kenyatta dismissed the claim and blamed local politicians - fingering Odinga in all but name. On Monday night, five more people were killed in an attack in the same region.
The presidency says there is no basis for national talks as there is no breakdown in institutions or constitutional order.
"He is trying to become relevant by manufacturing a crisis," said Munyori Buku, senior communications director at the presidency, adding the government had planned a conference on national unity for July but scrapped it when it was politicised.
Buku also repeated the assertion that last week's back-to-back attacks on Mpeketoni were "local terrorism" not al Shabaab, a Somalia-based Islamist militant group, although many Kenyans still question who was to blame.
TIMETABLE ON SOMALIA
The government says it has intelligence to prove its claim, but has not revealed evidence. The security forces killed five suspected attackers last week, but police say they have not traced their identities and no one has come for their bodies.
Odinga said the government had wrongly ruled out al Shabaab and said a spate of other militant attacks - which the government has blamed on Somali Islamists - should encourage the government to think again about keeping troops in Somalia.
"There must be a clear timetable of how and when we are going to remove our troops from Somalia," Odinga said, given the repeated attacks on Kenyan soil blamed on al Shabaab. He supported the deployment in 2011 when he was prime minister.
That debate, analysts say, may play into the hands of al Shabaab, a group that has vowed more attacks on Kenya and said it wants to drive out Kenyan troops, which fight alongside forces from other African Union nations.
Experts note that the attacks on the poor Mpeketoni town differed in tactics from other assaults, such as al Shabaab's September raid on Nairobi's upscale Westgate shopping mall that killed 67 people, but said this did not rule out al Shabaab.
Where Westgate united many Kenyans, including Kenyatta and Odinga, the attacks on Mpeketoni hit an area where ethnic-fuelled rivalries over land and other issues have festered, which in turn has widened divisions.
"I really appeal to the Kenyan leaders to de-escalate their political rhetoric," European Union envoy to Kenya, Lodewijk Briet, told Reuters last week, adding that political rallies on the street could slip out of control.
Odinga said the rallies he had held since May 31 had been peaceful and said he would not call for civil disobedience if the demand for dialogue was not met. But he said the government had to ensure all communities benefited under its rule.
"We are not inciting," said Odinga, a Luo, one among the dozens of ethnic groups in Kenya. "We are talking on behalf of all Kenyans, not particular communities."
The aide to Kenyatta, 52, an ethnic Kikuyu and son of the nation's founding president, said Odinga's call for inclusive government was a brazen bid for power. "That is what talks are about," said Buku.
Odinga denied any such goal but did not dismiss the idea of making a fourth bid for the presidency in 2017. "I have not ruled it out, but I have not considered it," he said. (Editing by Susan Fenton)