By Mark John
BRUSSELS, March 16 (Reuters) - European Union states will decide on Monday whether to grant Belarus President Alexander Lukashenko a new reprieve from a visa ban in a bid to encourage political reform in the traditionally pro-Russian state.
Lukashenko -- who runs what Washington once dubbed Europe's last dictatorship -- was banned from travel to the EU for allegedly rigging his re-election in 2006, but the bloc suspended the sanction last year as a reward for the freeing of political prisoners.
However, EU diplomats say progress towards democracy in Belarus has been disappointing since then, and EU capitals must now decide whether to reimpose the ban, or give Lukashenko and some 40 other senior Belarussian officials a further reprieve.
"It is in our interest that Belarus opens itself further," one diplomat said before a meeting of EU foreign ministers.
"The question is whether we will achieve that through sanctions, or incentives and dialogue."
Banning Lukashenko would exclude him from a May 7 summit in Prague between the EU and six ex-Soviet states, casting a shadow over an event due to launch new ties with eastern countries that are vital to the EU's hopes of weaning itself off Russian energy.
Germany has firmly advocated keeping the visa ban on hold, while countries including the Netherlands, Britain and Sweden are anxious that Lukashenko should not be let off the hook for continued concerns about freedom of expression and opposition.
Diplomats said a convoluted compromise had been put forward under which EU foreign ministers would agree to renew both the travel ban and the suspension, with an agreement to review the decision in six months' time.
"Not everyone has signed up to that yet, but that looks to be the direction in which it is heading," said a second EU diplomat.
The EU also wants to encourage Lukashenko to resist Russian pressure to recognise Georgia's breakaway regions of South Ossetia and Abkhazia, which declared independence last year.
But EU-Belarussian ties remain fraught. Lukashenko baffled EU officials earlier this month by scheduling a trip to Armenia at the last moment, causing the cancellation of a visit to Minsk by EU External Relations Commissioner Benita Ferrero-Waldner.
The Eastern Partnership offers a modest enhancement of EU ties with Ukraine, Georgia and Armenia, Azerbaijan, Moldova and Belarus. Despite making no promises on EU membership, it is sure to irk Russia, which views the region as part of its sphere of influence.
The scheme provides notably for closer cooperation on energy with the six countries, which are either rich in oil and gas or provide transit for energy from Russia and other states.
It offers some 350 million euros ($450 million) in new aid for the countries for strengthening state institutions, border control and assistance for small companies. (Additional reporting by Ilona Wissenbach; Editing by Kevin Liffey)