* Local Arab community force says rejects rebels' objectives
* Seeks to restore order to Arab-dominated trading zone
By Bate Felix and Adama Diarra
BAMAKO, April 9 (Reuters) - Members of Mali's Arab community in the northern town of Timbuktu have formed an armed group to fill the void left by the army's retreat, adding to a host of factions already involved and extending the ethnic dimension of Mali's conflict.
Residents in Timbuktu said the new group, known as the Azawad National Liberation Front, or FLNA, was essentially made up of members of an Arab militia that had been established to defend the town during an advance by Tuareg-led rebels.
After several months of fighting, the rebels - some of whom want independence for the north while others seek to impose sharia, Islamic law - swept through Mali's north last week, taking advantage of a coup in the distant capital which caused the front line to implode.
The rebels have an uneasy relationship, having coordinated attacks against government forces but now finding themselves vying for control of the zones they jointly seized.
Mohamed Lamine Sidad, FLNA's secretary general, told Reuters that the group sought neither independence nor sharia.
"We have our own interests to defend - a return to peace and economic activity," Sidad said by telephone, highlighting the economic clout the Arab trading community enjoys in Timbuktu, one of three northern regions seized by rebels.
Sidad, who said the group sought a peaceful resolution to Mali's crisis, refused to say how many fighters the group had.
Residents said the militia had several hundred members before the rebel advance but were unlikely to match the firepower of either the separatist MNLA rebel group or Ansar Dine, which experts say has links with local al Qaeda factions.
Timbuktu is largely in the hands of Ansar Dine, though the MNLA have retained control of the airport and the Arab militia withdrew to the town's outskirts without putting up a fight when the rebels entered last week, residents say.
The formal establishment of the Timbuktu group comes after Ganda Iso, a local pro-government militia in and around Gao, another town seized, failed to fend off the rebel advance there.
As armed groups jostle for position in the north, West African mediators are nudging Mali's leaders in Bamako towards resolving the crisis caused by the coup.
Ousted President Amadou Toumani toure resigned on Sunday, paving the way for the military to hand power to the president of the National Assembly, as required by the constitution.
On Monday, junta leader Amadou Sanogo met Diouncounda Traore, the president of the National Assembly, who is due to take over as president of Mali, but no statements were made.
A return to constitutional order was demanded by Mali's neighbours to ease sanctions and raise the prospects of regional group ECOWAS coming to the aid of Malian forces in the north.
"We are starting to recuperate the state. This is important," Baba Haidara, member of parliament for Timbuktu, told Reuters on Monday.
However, Haidara said the emergence of FLNA highlighted the fluidity of a zone where regional and Western powers fear al Qaeda will extend its reach in the chaos.
"It is total confusion. We don't know what is all about."
With Mali's military in tatters, outsiders - from ECOWAS as well as desert neighbours Algeria and Mauritania, who are not part of the bloc - are being looked to to try to restore a semblance of government control in the north.
But it will take both time and further negotiation to get boots on the ground given the differences between the nations and practicalities of raising a force to fight in the desert.
Mohamed Cisse, president of Timbuktu's regional assembly, said the Arab community was likely to be positioning itself for talks due to be held as a first effort to end the crisis.
The MNLA, which was boosted by men and weapons from Libya's conflict, have received little support for their declaration of independence, partly as the Tuareg are just one of many communities in the northern desert zones.
Underscoring the potential for the ethnic dimension of the conflict to deepen, a member of the FLNA said: "We, the Arabs of Timbuktu, will never be ruled by a Tuareg from Kidal," he said, referring to the most northern of the three seized regions, which is largely seen as a Tuareg homeland. (Writing by additional reporting by David Lewis; Editing by Louise Ireland)