UPDATE 2-Thai, Cambodian armies meet after border battle

(Recasts after talks begin, adds analyst quotes)

By Chor Sokunthea

PREAH VIHEAR, Cambodia, Oct 16 (Reuters) - Thai and Cambodian army commanders held talks across their disputed border on Thursday after the most serious clash in years killed two Cambodian soldiers and left 10 Thais in Cambodian hands.

Hundreds of Cambodian civilians fled the border area after Wednesday's 40-minute exchange of rocket and gunfire, as both sides rushed armour and troops to the conflict zone.

The 900-year-old Preah Vihear temple has stirred nationalist passions in both countries for generations, but escalation did not appear inevitable as officials avoided belligerent rhetoric.

"Our policy to resolve this conflict is through negotiations," Thai Prime Minister Somchai Wongsawat told reporters in Bangkok as the talks got under way near the temple.

Cambodian Prime Minister Hun Sen has said nothing since the clash, in which two Cambodians and five Thais were wounded. His foreign minister said it was "not an invasion by Thailand".

But people on the streets of Phnom Penh were angry.

"We need to defend our land. We must not lose to the Thais," said security guard Bun Roeun, 36, flicking through newspaper reports of the clashes. "If the Thais continue their attempt to cross our border, I am ready to join the army to fight back."

The confrontation comes amid great political instability and an economic slowdown in Thailand, as protesters in a long-running Bangkok street campaign urge the army to launch a coup against the elected government.

"It's hard to see how Cambodia gains from starting a war with Thailand at this point," said Tony Kevin, a former Australian ambassador to Phnom Penh.

"But if you look at the very tense and riven state of Thai politics, it's easy to see how a Cambodian war could be of interest as a distraction," he said. (For a related question and answer factbox, please click on [IDn:BKK123029])

DECADES-OLD DISPUTE

The International Court of Justice awarded the temple to Cambodia in 1962, a ruling that has rankled Thais ever since.

However, it failed to determine the ownership of 1.8 square miles (4.6 sq km) of scrub next to the stunning but remote Hindu ruins, which have been off-limits to tourists for months.

The dispute over this small parcel of land became highly politicised in Thailand in July when protesters trying to overthrow the Bangkok government adopted it as a cause.  Continued...