By Ulf Laessing

ADDIS ABABA (Reuters) - Former civil war foes Sudan and South Sudan appear to have made progress this week toward a deal that would allow the resumption of oil exports vital to the economies of both African countries, diplomats and sources familiar with the talks said.

Much could still go wrong given profound mutual mistrust and failure to fully implement previous deals, they said, but the mood at the African Union (AU)-brokered talks appeared to be brighter than in previous rounds.

South Sudan seceded from Sudan last year under a 2005 peace deal but the two have yet to resolve a litany of issues related to partition. Border clashes almost boiled over into full-scale war in April, although tensions have abated since then.

Western and African powers are now putting pressure on both presidents to come to the Ethiopian capital Addis Ababa at the end of the week to wrap up the talks before a U.N. Security Council deadline expires on Sept 22.

After two weeks of talks the sides are nearing an initial border security deal indispensable to implementing an interim pact on oil transport fees reached last month, diplomats said.

Neither side would confirm that Sudanese President Omar Hassan al-Bashir and his southern counterpart, Salva Kiir, would hold a summit just before the end of the U.N. deadline, but diplomats were optimistic.

"We've come a long way. There are still issues that need to be solved but it's doable. The atmosphere at the talks is positive," one diplomat told Reuters.

"The talks are constructive. Both sides have made progress and (are) trying to reach a deal," said a source after the talks.

The landlocked South shut down its oil output - which accounted for about 98 percent of its state revenues - in January in a row with Khartoum over how much it should pay to export oil through the north to Red Sea ports.

But the two are now "very close" to a final oil transport accord, another diplomat said, adding that the sides were now discussing technical aspects of restarting production. "They talk more focused this time and are very constructive."

BUFFER ZONE

Diplomats say the main goal now is to get Sudan to agree to a demilitarized border buffer zone, a first step toward settling broader disputes over the volatile, poorly demarcated frontier.

Sudan objects to a map proposed by the AU which puts a 14-km (8.7-mile) strip inside the South's territory. The land is fertile grazing ground for Arab tribes allied to Khartoum.

Diplomats said the two sides were discussing a mechanism that would see South Sudan's army pull out of the area with its ultimate fate to be decided later.

"There is huge pressure on Sudan to say yes to the map. Experts are now discussing how to work around Sudan's security concerns such as a pullout of southern forces from the area," said a diplomatic source close to the South's delegation.

Once a buffer zone has been agreed, southern oil exports could resume, which would give a lift to both economies and an incentive to both sides to keep discussing other, more complex issues. But one of the most daunting - the fate of the contested Abyei border region - will not be solved in this round of talks.

Western powers hope for more significant progress once the sides agree to resume oil exports, which would take several months as the pipelines were flooded with water and some oil fields damaged during fighting in April.

(Editing by Alexander Dziadosz and Mark Heinrich)