(Adds divisions over wording of declaration)
By Ulf Laessing and Rania El Gamal
KUWAIT, Jan 20 (Reuters) - Arab leaders will agree at a summit on Tuesday to launch a $2 billion reconstruction fund but differences persisted over finding a united stance on the Israeli offensive in Gaza.
Israel's three-week assault that killed more than 1,300 people has underscored the divide between those allied to Egypt and Saudi Arabia on one side, and those allied to Syria and Qatar on the other.
The debate in Kuwait, which delayed the summit's final session, was over whether to include strongly worded resolutions recommended at a special meeting on Gaza in Qatar last week, Arab diplomats said.
The Doha meeting called on Arab countries to review their ties with Israel and to suspend a 2002 Arab peace initiative.
However, Arab foreign ministers last week prepared a different set of resolutions for approval by leaders on Tuesday, including a pledge of support for the Palestinian Authority headed by President Mahmoud Abbas.
Abbas, who controls the West Bank but lost control of Gaza to Hamas in 2007, is backed by the West but seen as weak by leaders of some Arab states such as Syria.
The 2002 peace initiative offered Israel normal relations in return for full withdrawal from all Arab land and a just solution to the issue of Palestinian refugees.
King Abdullah said on Monday the initiative was still on the table, but that the Jewish state should not expect it to stay forever.
AID AND ENERGY
Leaders were expected to back a $2 billion fund to rebuild Gaza. Saudi Arabia has committed $1 billion to the fund.
A draft of the final declaration obtained by Reuters showed that leaders would focus on increased economic cooperation, with the emphasis on energy.
The draft calls on Arab states to work together to tackle the impact of the global financial crisis on the region and to take part in global efforts to restore financial stability. It urges financial institutions to facilitate credit.
World Bank President Robert Zoellick told Arab leaders in a speech to the summit on Monday that the Arab world must be a part of the global response to the crisis. Western governments have also asked cash-rich Arab oil exporters to contribute to efforts to ease the crisis.
Arab central bankers and finance ministers meeting ahead of the summit last week urged their governments to keep state spending high to shore up domestic economies amid a collapse in oil prices and recession in the industrialised world.
The slump in oil prices has slowed a phase of rapid regional growth, battered investor confidence and strained budgets.
Arab leaders will call for cooperation in the use of nuclear energy for peaceful purposes and the expansion of regional power grids and natural gas networks, according to the draft.
Governments across the Arab world have expressed interest in nuclear power to meet rapidly rising electricity demand. Some of the world's top oil exporters are looking at nuclear energy to avoid burning fuel at home and keep oil export cash rolling in.
Arab interest in nuclear power has raised fears of a regional arms race with Iran, although Arab states have said they would avoid the processes that could be used to build nuclear bombs. (Writing by Simon Webb; Editing by Alison Williams)