By Lada Yevgrashina

BAKU (Reuters) - Azerbaijan said talks with Armenia on the Nagorno-Karabakh conflict would be "decisive" and warned Azeri troops were ready to use force to take back the rebel region if they fail.

Azerbaijan President Ilham Aliyev meets Armenia's Serzh Sarksyan on Sunday in Munich for the latest in a string of meetings this year on the Armenian-populated mountain region, which broke away from Azerbaijan in the early 1990s.

The conflict has been thrust back into the diplomatic spotlight this year, with Azeri ally Turkey pressing for progress before it seals an historic thaw with neighboring Armenia and opens the border it closed in 1993 during the war.

"That meeting must play a decisive role in the process of negotiations," Aliyev said late on Friday, in comments broadcast by state television on Saturday.

"If that meeting ends without result, then our hopes in negotiations will be exhausted and then we are left with no other option," he said, saying Azerbaijan had the right to use force to take back the mountain region.

"Azerbaijan is spending billions on buying new weapons, hardware, strengthening its position on the line of contact," he said at a meeting with Azeri refugees from the conflict.

"We are doing that because we never excluded and we do not exclude that option. We have the full right to liberate our land by military means."

Aliyev often threatens force to take back the territory, at the heart of a key region for transiting its oil and gas to the West. Analysts say the saber-rattling should be seen in the context of Azeri anger over Turkey's deal with Armenia.

MINEFIELDS, SNIPERS

But Western diplomats warn the frontline, a warren of minefields and trenches manned by snipers, is inherently unstable, and it would take little for the frequent clashes there to escalate.

Ethnic Armenians in Nagorno-Karabakh, backed by Christian Armenia, threw off rule by Muslim Azerbaijan in fighting that erupted as the Soviet Union headed toward its 1991 collapse.

The Armenians took control of the territory and seven surrounding Azeri districts before a ceasefire was declared in 1994. Some 30,000 people died and more than 1 million were made homeless. Around 100,000 Armenians live in Nagorno-Karabakh.

Turkey closed the border in solidarity with Azerbaijan. But in October, Ankara and Yerevan, at odds for a century over the World War One mass killing of Armenians by Ottoman Turks, signed accords to establish diplomatic relations and open the frontier.

Faced with a backlash from Azerbaijan, and protracted negotiations over Azeri gas supplies from the Caspian Sea, Turkey says it will only ratify the Armenia deal if its sees progress in the talks on Nagorno-Karabakh.

A trio of mediators from the United States, Russia and France say they are making progress in the talks, but analysts and Western diplomats say neither side appears ready to commit to difficult concessions and sell them to their people.

The mediators are working on a deal that would see the return of many of the Azeri districts held by Armenians, greater international legitimacy for the Nagorno-Karabakh authorities and a future popular vote to decide its status.

(Writing by Matt Robinson; Editing by Jon Hemming)