(Corrects first name of Algerian minister in 14th paragraph)
* Niger seeks action, Algeria dialogue in Mali's north
* Confusion prevails in northern zone abandoned by army
By Laurent Prieur
NOUAKCHOTT, April 8 (Reuters) - Sahara Desert states differed on Sunday over whether to crush or talk to the rebels who have seized northern Mali - a mix of Tuareg separatists and Islamists with links to al Qaeda.
At a meeting of regional countries in Mauritania, Niger said the rebels' gains should be reversed before any talks, but Algeria warned that military intervention risked further complicating the situation.
The rebels, bolstered by guns and fighters from Libya's war last year, routed Malian troops, in disarray after a March 22 coup, to carve out a zone the size of France and declare an independent state of "Azawad".
Mali's government had long had a weak hold over its northern zone, but its neighbours now fear a void that will exacerbate regional instability, terrorism and smuggling.
Mauritania, Algeria, Niger and Mali had set up a joint military command headquarters before the lightning rebel push, although it had struggled to coordinate efforts against what they see as an Islamist threat in the Sahara.
Niger, which has suffered its own sporadic Tuareg rebellions, said there could be discussion of some of the demands of the separatist National Movement for the Liberation of Azwad (MNLA).
But Foreign Minister Mohamed Bazoum echoed international rejection of the group's claim for independence as "absurd and unacceptable".
"We need to work to redress the balance of forces on the ground before we can talk about negotiations," Bazoum said at the opening of the meeting in Mauritania's capital, Nouakchott.
"We need to organise a confrontation with the terrorist groups ... Mali's north must be cleared of terrorism and it seems to me we have the ideal opportunity," he said.
West Africa's ECOWAS group had been mulling an intervention to prevent any further rebel push until the coup meant restoring civilian rule became the regional bloc's priority.
The junta pledged on Saturday to leave power within days, paving the way for the possibility for an intervention but it remains unclear when boots could be put on the ground.
Bazoum said Niger, Mauritania and Algeria, as Mali's closest partners in the north, should engage in diplomacy but be ready to intervene militarily, if needed.
Algeria, the region's biggest power, took a different tack, saying talks were the only way out. France, colonial ruler over all the states at the table, has also pushed for dialogue with the separatist rebel movement.
"The solution can only be a political one. It cannot be the result of a military effort which could instead worsen an already complex and precarious situation," Abdelkader Messahel, Algeria's delegate minister for African affairs, said.
Algeria's position in Mali has been further complicated by the kidnapping last week of its consul and six other staff from its mission in Gao, one of the northern towns seized by rebels.
Algeria's El Watan newspaper reported on its website on Sunday that the diplomats had been freed, but Algerian officials in Nouakchott were unable to confirm that.
Nearly a week after Malian government forces were completely routed across the north, it remains unclear which groups really control main towns or swathes of territory.
The MNLA separatists, which are more prominent in Gao than the Islamists, denied any involvement in the kidnapping.
Ahead of the El Watan report that the diplomats had been freed, French RFI radio said MUJWA, a splinter group from al Qaeda's North Africa wing, AQIM, had claimed the kidnapping. (Writing and additional reporting by David Lewis; Editing by Matthew Tostevin/Ruth Pitchford)