BEIRUT (Reuters) — Rifts between Hizbollah and its Lebanese opponents will ensure that Lebanon has no easy ride as it tries to rebuild the economy and state institutions after Israel’s devastating war with the Shi’ite Muslim guerrillas.With the last Israeli troops expected to leave the south shortly, Hizbollah was staged a huge rally on Friday to celebrate its “divine victory” in the 34-day conflict.

Its Sunni Muslim, Druze and Christian critics applaud the exploits of the guerrillas against Israel’s war machine.

But they question the reality of a victory that cost nearly 1,200 lives in Lebanon, as well as billions of dollars in destruction and economic losses inflicted in an onslaught launched after Hizbollah captured two Israeli soldiers.

“There are many accounts to settle,” a Western diplomat said. “The situation is fragile. We are at a crossroads.”

As it emerges from yet another war, Lebanon again faces a struggle over its destiny. Its outcome depends as much on wider regional conflicts as it does on internal disputes within the country’s complex Muslim-Christian power-sharing system.

Broadly, Lebanon is torn between two incompatible visions. Hizbollah leader Sayyed Hassan Nasrallah envisages Lebanon as a “resistance state”, aligned with Syria, Iran and militant Palestinian factions, in which his guerrillas would retain their weaponry to deter Israel and fight it if necessary.

This is anathema to the anti-Syrian coalition that dominates parliament and Prime Minister Fouad Siniora’s government in an uneasy partnership with Hizbollah and its allies.

The coalition’s leaders favour a liberal, pro-Western <\m> if still sectarian <\m> state that with international support can extend its writ to Hizbollah bastions in the south and persuade the group to disarm or integrate into a rejuvenated army.

Since a UN truce ended the war on August 14, both sides have dropped a veneer of unity kept up during the conflict, trading bitter accusations that have deepened a mood of uncertainty.

Hizbollah is demanding a national unity cabinet to bring in Christian opposition leader Michel Aoun and pro-Syrian figures.

Siniora insists his government will stay put as long as it commands the parliamentary majority it won in last year’s elections <\m> which Aoun and others criticise as deeply flawed because of the shortcomings of Lebanon’s electoral law.

Hizbollah’s opponents say the group is trying to sabotage the democratic process and provoke a constitutional crisis.

Views on who has the upper hand reflect differing opinions on the war’s impact on Hizbollah, an Islamist movement whose popularity among its Shi’ite following depends as much on its welfare network and social services as its military muscle.

“Hizbollah has been substantially weakened,” argues Lebanese analyst Michael Young. “Nasrallah is trying to regain the initiative in domestic politics by rallying his Shi’ite base.

But he noted that Hizbollah ministers had remained in the government and said Nasrallah might not take polarisation too far because he would not want to be blamed for street violence or for plunging the country into political deadlock.

In contrast, London-based analyst Nadim Shehadi said it was Western-backed politicians who were on the defensive due to perceived US support for Israel’s “rampage” in Lebanon.

“Hizbollah’s vision of a bunker state is much stronger now because it’s been vindicated by the Israeli military attack,” he said, adding that Lebanon had received no outside protection.

The tussle over Lebanon’s identity, never settled since independence in 1943, is unlikely to lead to any renewal of its 1975-90 civil war.

Lebanese dread the memory and all are aware that any showdown between Hizbollah and the army, the only significant Lebanese armed groups, would spell disaster.