* Government promotes Sunni group to counter opposition
* Leader says Shi'ite opposition must cut links to Iran
By Andrew Hammond
MANAMA, May 28 (Reuters) - Bahrain's opposition must change its leadership for the divided Gulf Arab state to move on with political reconciliation after crushing a pro-democracy movement led by majority Shi'ites, a Sunni cleric said on Saturday.
Sheikh Abdullatif Al-Mahmoud said the democracy movement, which began in February when protesters inspired by uprisings in Tunisia and Egypt occupied a roundabout in Manama, had been hijacked by Shi'ite opposition leaders with a sectarian agenda who were in contact with Iran's clerical leadership.
Mahmoud led a team of Sunni negotiators coordinating with Crown Prince Sheikh Salman bin Hamad al-Khalifa in talks with the opposition days before Saudi troops entered Bahrain to help the government break up the protest movement and arrest its leaders in mid-March.
He said Shi'ite leaders, headed by Sheikh Ali Salman, leader of the largest opposition group Wefaq, had overplayed their hand by trying to marginalise the royal family in the talks on political reform and accused them of taking orders from Iran -- a familiar Sunni charge against group.
"We consider there to be three forces: the system (royal family), the Sunnis and the Shi'ites, and political and constitutional reform needs the consent of all of them," he said in an interview.
"The problem is that the political Shi'ite movement has not conducted a reappraisal up to now. We don't want to reject Shi'ites or their political groups," he said.
"What is needed is that they reform themselves then present themselves again to society. In my view they will change their political leaderships, especially Wefaq."
Twenty-one opposition leaders -- seven of whom are abroad -- are on trial in military court on charges of seeking to overthrow the government. Salman is not one of them, as the authorities have left senior Shi'ite clerics alone.
Sunni political groups are demanding the men be sentenced to death and the government refrain from issuing amnesties.
The leaders on trial are not all Shi'ite. They include Ibrahim Sharif, a Sunni who heads the secular Waad group.
Bahraini rights activists say they and hundreds of Shi'ites in detention have been tortured in jail, while thousands have been fired or suspended from work in state-linked companies for taking part in or supporting the protests. Some say there were not involved and are being targeted because they are Shi'ite.
The Sunni-run government, dominated by the ruling Al Khalifa family, hopes leisure and business tourism will return to normal once martial law imposed in mid-March ends on June 1. Shi'ites say they fear the repression will continue behind the scenes.
Mahmoud said Shi'ites were to blame for their suffering.
"It was Sunnis who were living in terror first, not the Shi'ites. (Repression) is the result of criminal acts they committed," he said, accusing protesters of attacking and insulting minority Sunnis. He also condemned strikes by school teachers and days off to protest offered by some companies.
After the first week of protests, Mahmoud organised a National Unity Rally to counter the Shi'ite-led democracy movement which the government continues to promote as a sign of widespread rejection of Wefaq and the protest movement.
He denied opposition charges his movement is funded by U.S. ally Saudi Arabia or the ruling family but said he met with U.S. Assistant Secretary of State for Near Eastern Affairs Jeffrey Feltman after the first mass meeting he organised in late February.
The opposition say Mahmoud's Rally lacks a popular base and is a vehicle for the royal family, which feared calls for its ouster after the death of seven protesters hardened the movement's resolve after its first week.
"At first I wasn't worried (by the protests). They wanted to discuss setting up a constitutional monarchy, reforming parliament and naturalisation (of foreign Sunnis). I said yes, there's no problem with that," Mahmoud said.
"But then it became clear it wasn't about reforms, it was about sectarian politics, to set up a religious state controlled by the supreme jurist," he added, referring to Iran's Supreme Leader Ayatollah Ali Khamenei.
Wefaq rejects Sunni charges that it takes instructions on political issues from outside Bahrain. Most Bahraini Shi'ites look to Ali Sistani in Iraq for guidance in religious matters or Bahrain's most senior cleric Issa Qassim. (Editing by Louise Ireland)