KIWANJA, Democratic Republic of Congo (Reuters) - Four years after dozens of his neighbors in the remote eastern Congolese village of Kiwanja were butchered by rebels, Olivier has a sense of a recurring nightmare.

Insurgents once again stalk the village's abandoned streets and fearful residents crowd for safety at the shut gates of the nearby U.N. peacekeepers' base as gunfire shatters the silence and government troops retreat in chaos.

As with a previous 2004-2009 rebellion, Congo's leaders, U.N. experts and regional analysts point to small but militarily powerful neighbor Rwanda as the driving force behind this latest insurgency to test Kinshasa's tenuous hold over the east.

A confidential report by the U.N. Security Council's Group of Experts, seen by Reuters, says Rwanda's defense minister is personally running the M23 rebellion, and that both Rwanda and Uganda are arming its fighters - charges vehemently denied by both countries.

After wars in the 1990s, Rwanda withdrew troops from Congo in 2002. But Congo watchers say Rwanda's security apparatus has continued to project its military, political and economic interests across the border, using armed groups as proxies.

Kiwanja resident Olivier, who withheld his surname fearing reprisals, believes many of the same fighters that carried out the 2008 massacre that killed 150 people in his village have returned as part of the new rebellion.

"For me, it's the same movement, just changed its name," said the 20-year-old, referring to the M23 rebels who have seized territory north of Goma in eastern North Kivu province in recent months, forcing hundreds of thousands from their homes.

The United Nations linked Rwanda to the rebels behind the last revolt, which finally ended in 2009 when Rwanda arrested the Congolese Tutsi rebel leader, Laurent Nkunda, who denies his forces were behind the massacre in Olivier's village.

For a time, Rwanda and Congo cooperated and Nkunda's former fighters, the CNDP, were integrated into the Congolese army. But that deal has fallen apart, and the new rebels say they have taken up arms again because the Congo government reneged on it.

Meanwhile, Congolese who have known relentless war and rebellion for the past 18 years, see more killing ahead. Jean Mwendo, one of thousands living with no shelter on muddy roads on the outskirts of Goma after fleeing fighting, said he had to leave his parents behind because they were too weak to leave.

"Before it was the CNDP who made war. Now it's M23. We think it's the same... It's Rwanda who cause all the war in the east."

DENIAL DOUBTED

Rwanda strongly denies backing the M23. A small country that has long been held up by Western governments and businessmen as a model of reform, Rwanda jealously guards its reputation.

But Western countries have made clear they do not believe its denials. Several, including the United States, Britain and Sweden, have frozen aid over accusations that Rwanda is waging proxy war across the border.

"Rwanda has maintained covert capacity to shape events in the east (of Congo). They never let go," said Ben Shepherd, a British ex-diplomat who has followed the region for 10 years.

"There is a complex stew of economic, nationalistic and ethnic drivers as to why they are doing it," he added.

Rwanda, whose army first entered Congo in 1996 and fought in two wars there, says it is being made a scapegoat for the Congo government's and wider world's failures to bring peace to the vast, mineral-rich former Belgian colony at the heart of Africa.

"We are kind of really getting tired of getting caught up in a conflict that's not ours," said Louise Mushikiwabo, Rwanda's foreign minister.

When U.N. experts drafted a preliminary report, leaked in June, citing evidence that senior Rwandan military officials had been backing the M23 rebellion, the Rwandan government issued a detailed, point-by-point rebuttal that condemned the report as one-sided.

A more detailed document from the U.N. experts seen by Reuters this week points the finger squarely at Rwandan Defence Minister General James Kabarebe as the man in charge of the rebellion, adding Rwandan defence forces were also actively recruiting for the rebel movement.

Independent Great Lakes expert Jason Stearns believes the festering eastern Congo conflict is eroding one of Rwanda's biggest assets: its status as model of post-conflict development lauded by world leaders and business executives.

"The biggest damage that's happening to Rwanda right now is the damage to its reputation," he said.

Congo's geography of vast, impenetrable rainforest has long steered its eastern trade away from its own distant capital Kinshasa and towards Rwanda's much closer capital Kigali.

Congo's borderlands are separated from Kinshasa by more than 1,500 km (900 miles). There are no year-round roads and a decrepit aviation sector.

By contrast, traders in Goma, lakeside capital of Congo's North Kivu province, can cross the Rwandan border and drive just a few hours on gleaming highways to its capital Kigali, where a modern airport boast flights to far-flung hubs like Dubai.

David Katumba, vice president of the Federation of Congolese Enterprises lamented that Congolese businessmen keep millions of dollars in Rwanda's banks: "With our weakness, it's given them (Rwanda) an opportunity to do what they want with us."

OUTCOME OF GENOCIDE

More than 5 million people died in Congo through violence, hunger and disease as a result of two wars and a series of rebellions since the late 1990s, according to a 2008 study by the International Rescue Committee.

All those conflicts were broadly linked to the 1994 Rwandan genocide that saw Hutu soldiers and militia kill around 800,000 mostly ethnic Tutsis in 100 days. After the genocide, many of the Hutu militia fighters fled to camps in Congo.

Rwanda, now led by President Paul Kagame's Tutsi-dominated government, says the Hutu fighters sheltering in Congo remain a threat, and it has a right to focus on security, especially as the Congolese state has failed to pacify the border area.

A sizable population of speakers of the Rwandan language live across the border in Congo. Militias have sprung up from this group, often headed by Tutsis such as Nkunda's CNDP, officially to protect themselves from Hutus and other hostile ethnic groups but frequently taking sides in uprisings against Kinshasa, often with Rwandan support.

Nevertheless, Congolese officials and U.N. experts say Rwanda's past interventions have been motivated as much by economic interests as by security.

Rwanda now has one of the best armies in Africa, and has not suffered an attack from Hutu rebels in Congo for about a decade.

The United Nations says the Hutu rebel FDLR force hiding in eastern Congo, believed to number as many as 15,000 a decade ago, has been reduced to less than 3,000 fighters.

Previous U.N. reports have documented lucrative smuggling rackets ferrying coltan, tin, gold and tungsten ferried across to Rwanda. At the height of Congo's last war in 1999, profits from eastern Congo's mineral fields contributed some $320 million to Rwanda's defence budget, U.N. experts said.

Congo's Information Minister Lambert Mende says the pattern of war for mineral wealth has resumed, and the latest rebel campaign is an extension of a Kigali-backed "war of pillage".

"The (Rwandan) mafia profit to the maximum from the disorder, not paying anything to the Congolese state," he said.

Noel Twagiramungu, a Rwandan human rights activist who fled his country in 2004 when civil society groups came under pressure, also said money was at the root of the intervention.

"I think we can say that Rwandan involvement in Congo minerals is a state-controlled enterprise," he said.

Emmanuel Ndimubanzi, head of the North Kivu's provincial government's mining division, said new local and international legislation targeting conflict minerals has slowed legal trade to almost zero, but smuggling routes remain.

WEAK CONGO

Those who accuse Rwanda of pulling the strings point to the M23's rapid expansion as a sign it must be helped from abroad.

The M23 rebels numbered just a few hundred in April and were surrounded by government forces. Since then, their ranks have swelled to some 1,500. The advancing fighters wear crisp camouflage uniforms and brandish gleaming new guns and grenades which they say they captured from fleeing government troops.

Rebel deserters have given detailed accounts of recruitment drives in Rwanda to supply fighters for M23. Young men identified themselves as Rwandans and said they were told they were joining the Rwandan army, but instead found themselves sent across the border to fight as Congolese rebels. Rwanda and M23 deny those accounts.

Ultimately, the success of rebellions in eastern Congo has at least as much to do with Congo's weakness as Rwanda's strength. Congo's President Joseph Kabila has ruled out dialogue with the rebels, saying they must be crushed, but he lacks the capable military forces that could carry out the threat.

Several weeks of rebel advances have laid bare the weakness of the Congolese government army, despite millions of dollars in foreign aid. The front is now just 30 km (19 miles) from Goma.

M23 takes its name from a March 23, 2009 deal that ended the 2004-09 revolt by Nkunda's CNDP. The new insurgents accuse Congo's government of failing to honor that 2009 peace pact, which would have guaranteed them salaries as Congolese troops.

U.N. investigators say a key figure in the M23 uprising is Bosco Ntaganda, who took over the CNDP when Nkunda was arrested, and then served as an officer in Congo's army for several years when the CNDP was incorporated in it under the 2009 peace deal.

Ntaganda is now sought by the International Criminal Court for alleged war crimes. His fighters began flocking to the M23 after the Congolese government raised the prospect of arresting him and breaking up what it described as CNDP criminal networks.

Shepherd says Rwandan President Paul Kagame is caught between wanting to maintain inflows of foreign aid to fund his development plans and sustaining the loyalty of his powerful military, which sees opportunities in Congo's eastern riches.

"Keeping their loyalty may explain Kagame's willingness to risk so much in (Congo)," the former diplomat wrote in an analysis for independent think tank Chatham House in London.

Tutsi rebel chiefs like Nkunda and Ntaganda forged deep bonds through military careers in the ranks of Rwanda's armed forces on both sides of the border in the 1990s, before they later became rebels in Congo.

"You can't see the Rwandan element in Congo without domestic politics in Rwanda. The military establishment in Rwanda is extremely influential and important. They often have an attitude towards eastern Congo of wanting to control everything that goes on, especially on their border," Stearns said.

The M23 rebels have made tentative efforts to link up with other armed groups in the east, where Kabila won heavily in a 2006 election but where his popularity has plummeted since, further hurt by a troubled re-election last year criticized as flawed by local and foreign observers.

The rebels are also keen to tap into broader frustrations over incomplete decentralization plans, sentiments shared both in the east and in the southern copper rich mining province of Katanga, which has a history of secessionist bids.

Kinshasa's press is full of editorials accusing Rwanda of seeking the break-up of Congo.

Kabila faces a dilemma similar to 2009, and must choose between a domestically unpopular deal with the rebels and trying to defeat them with a government army which has simply collapsed in the face of rebel advances. Witnesses often talk of encountering drunken government troops in full retreat.

Regional efforts to tackle the crisis have for now led to a pause in fighting but provided no lasting solution.

A summit in Uganda's capital Kampala in August discussed a "neutral force" that would eliminate Congo's eastern rebels, but failed to secure clear agreement.

It was not established who would be part of such a force, raising raw memories of the late 1990s, when armies of nine neighboring nations were sucked into fighting in Congo.

The longer the M23 revolt lasts, the more difficult Rwanda may find it to end its damaging entanglement in eastern Congo.

"Can Rwanda draw a line between what is Rwandan affairs and what is Congolese affairs? I don't think so," said rights activist Twagiramungu.

Back in Kiwanja, Olivier wishes only for an end to the recurring nightmare. The rebels bring a "reign of terror", he says. "Everyone goes to bed and dreams that when they wake up, they will be gone."

(Writing by David Lewis and Richard Valdmanis; Additional reporting by David Lewis in Dakar; Drazen Jorgic in Kampala, Joe Bavier in Abidjan, Louis Charbonneau and Michelle Nichols at the United Nations; Editing by Pascal Fletcher and Peter Graff)