U.S.'s UN envoy warns Eritrea over Somalia rebels

* Eritrea could face UN sanctions for backing rebels

* Getting UN to sanction Eritrea won't be easy -diplomats (Adds U.N. diplomats, paragraphs 11-14)

By Susan Cornwell

WASHINGTON, July 29 (Reuters) - Eritrea has only a short time to stop undermining security in Somalia or face possible U.N. sanctions, Washington's ambassador to the United Nations, Susan Rice, said on Wednesday.

Rice told a congressional committee the United States was "deeply concerned and very frustrated" with Eritrea's behavior in Somalia, including arming and funding Islamist insurgents

"It is unacceptable, and we will not tolerate it, and nor will other members of the Security Council," she told the House Foreign Affairs Committee.

The U.N. Security Council warned Eritrea this month it would consider action against anyone undermining peace in Somalia.

"We will continue to discuss with colleagues in the Security Council appropriate measures, including potentially sanctions, against Eritrea for its actions in Somalia," Rice said.

"There is a very short window for Eritrea to signal through its actions that it wishes a better relationship with the United States and indeed the wider international community.

"If we do not see signs of that signal in short order, I can assure you that we will be taking appropriate steps with partners in Africa and the Security Council," she said.

Somalia's government and others have accused Eritrea of supplying arms to insurgents in breach of a U.N. embargo that allows such shipments only to the government.

The African Union, which has a force of 4,300 peacekeepers in Somalia, has called on the United Nations to impose sanctions on Eritrea for backing the rebels.

Eritrean officials deny the charges of arms supplies.

SANCTIONS MAY NOT BE EASY

U.N. diplomats in New York said imposing sanctions against Eritrea might not prove so easy.

The chairman of the Security Council's sanctions committee, Mexican Ambassador Claude Heller, told Reuters that during a closed-door council meeting on Wednesday, several members had urged adding some Eritreans to the sanctions list for backing rebels in Somalia.

Diplomats said the United States, Britain, France and Mexico were among those supporting the idea, but China was worried the already difficult communication with Asmara could be made impossible if any Eritrean individuals or companies were sanctioned.

"The Somalia sanctions process is moving very slowly," a Western diplomat told Reuters on condition of anonymity. Another diplomat said it might be difficult to persuade China, which has extensive economic interests in Africa, to support any punitive measures against Eritrea.

Al Qaeda-linked fighters belonging to the al Shabaab insurgent group control much of southern and central Somalia and most of the capital Mogadishu.

Rice said the Eritreans had rebuffed repeated U.N. attempts to discuss the situation. She said Eritrea had essentially "stiffed and stonewalled" the United Nations. (Additional reporting by Louis Charbonneau at the United Nations; editing by Mohammad Zargham)