WASHINGTON - A NOBEL Peace Prize-winner is taking on the formidable challenge of trying to forge a diplomatic solution to the leadership crisis in Honduras.

Ousted Honduran President Manuel Zelaya and interim Honduran leader Roberto Micheletti have agreed to accept Costa Rican President Oscar Arias as a mediator.

The appointment of Mr Arias was backed by the United States and announced on Tuesday by Secretary of State Hillary Rodham Clinton after she met privately with Zelaya at the State Department. Mr Zelaya was ousted last month in a coup.

Mr Arias will conduct the mediation in Costa Rica, where Mr Zelaya intends to travel from Washington, and Ms Clinton said she expected the process to begin soon.

Mr Zelaya said he was pleased with Mr Arias' appointment.

Meanwhile, in Honduras, Mr Micheletti, who had vowed not to negotiate until 'things return to normal,' appeared to open some space for a settlement to the crisis that began on June 28 when Mr Zelaya was detained by the military and forced into exile.

Mr Arias 'is a man with a lot of credibility in the world,' Mr Micheletti told HRN radio. 'We are open to dialogue. We want to be heard.'

While Mr Micheletti said he would send a delegation soon to Costa Rica - a reversal from past days, when he said he would not negotiate until 'things are normal' - he also said the meeting 'doesn't mean that Mr Zelaya will be allowed to return.' He later told a news conference that the dialogue with Mr Arias should 'start from the understanding that Zelaya's return is not open to negotiation.'

In another hint of possible compromise, a Honduran Supreme Court official said on Tuesday that political amnesty for Mr Zelaya is possible.

Mr Arias won the Nobel Peace Prize in 1987 for helping broker an end to Central America's civil wars.

Ms Clinton called on all parties to refrain from further violence in an effort to resolve the political crisis and said she was 'heartened' that Mr Zelaya had agreed to Mr Arias' mediation and would not again try to force his way back to Honduras as he did over the weekend. -- AP