Further violence could erupt in Kenya unless a solution to the country's political crisis is found urgently, an international think tank has warned.
Armed groups on both the opposition and government sides are mobilising for fresh attacks, according to the International Crisis Group (ICG).
Its report calls for legal, electoral and constitutional reforms and for aid to be conditional on a peaceful result.
Ex-UN chief Kofi Annan has been leading mediation talks in Nairobi.
The two sides agree on a grand coalition in principle, but deadlock remains over how it should work in practice.
Opposition leader Raila Odinga wants powers vested in a new post of prime minister - but this needs MPs to amend the constitution and is opposed by President Mwai Kibaki.
The ICG report comes as Kenya's opposition warned it would relaunch mass protests in a week's time if the talks do not break the political deadlock.
Ethnic and political violence broke out after President Kibaki was declared the winner of December's presidential election.
At least 1,000 people have been killed across the country and hundreds of thousands of people have been displaced.
The ICG report warned "serious obstacles" to peace remained and made 12 recommendations.
These included sanctions to be targeted at those responsible for inter-ethnic violence.
And the group said international aid should be made dependent on a satisfactory outcome to negotiations.
"The current uneasy calm in Kenya should not be misunderstood as a return to normalcy," said the report.
Roots of conflict
In an interview with the BBC, the ICG's Donald Steinberg said he thought the negotiations to establish a transitional government were going quite well.
"It's very important, however, that the negotiations go deeper than that," he said.
"We are very concerned that the efforts to reach that short-term agreement come at the expense of very long-term and fundamental changes that need to occur.
Can opposition leader Raila Odinga and Mwai Kibaki govern together?
"If all we get is a short-term agreement on power-sharing and transitional arrangements, it's uncertain that the instigators of the violence will deem that as acceptable," and the violence might resume, he said.
At the root of the violence, said Mr Steinberg, were the tribal divide-and-rule policies of Kenya's previous ruler, Daniel arap Moi, which had not been addressed under Mr Kibaki.
The report noted that Kenya was the platform for relief operations in Somalia and Sudan and a haven for refugees from throughout the region.
The think tank also said Kenya was a vital regional trade hub and a key anchor for prospects of long-term stabilisation in Rwanda, Uganda and Burundi.
It concluded: "The quicker a comprehensive solution to the crisis in Kenya is found, the better the prospects will be for the entire region.
"The alternative - a collapsed economy, the evisceration of the democratic process and ethnic and territorial conflict - would have severe consequences for the whole of east Africa, and well beyond."