BAGHDAD (Reuters) - U.S. officials in Baghdad fear that a fuel crisis, which has left Iraqi homes cold and dark and drivers waiting days for petrol, may inflame unrest before next month's election.

"If the current situation does not improve quickly, public confidence in the government may deteriorate significantly," a diplomat wrote this week in a note circulated among the U.S.-led coalition occupying Iraq and obtained by Reuters.

Blaming sabotage, banditry and guerrilla attacks on convoys, the note urged "extraordinary efforts" to ease shortages in Baghdad and elsewhere that have sent fuel prices soaring.

In another setback for U.S. efforts to win the confidence of local people, an American sergeant was convicted of murdering an injured 16-year-old Iraqi in what troops had called a "mercy killing"; many Iraqis complain other killings go unpunished.

The incident, during a Shi'ite uprising in August in the Sadr City district of Baghdad, happened after U.S. troops opened heavy fire on a suspected militants.

Local people said afterwards that they were simply overnight garbage collectors. Six other Iraqis were also killed.

Staff Sergeant Johnny Horne, 30, pleaded guilty to murder at his Baghdad court martial and was to be sentenced later.

For Iraqis, who can vote for a national assembly on Jan. 30, shortages of electricity and fuel are, aside from insecurity in much of the country, prime complaints since the war.

With temperatures dropping close to freezing, electricity seems in shorter supply even than a few months ago, despite U.S. efforts to repair war and sabotage damage. Typically many households have two hours of power before a four-hour blackout.

A State Department spokesman said the fuel shortage was part of the security problem the Iraqis and multinational force were working to overcome.

"It's a reminder that the job is not yet done," he said. "The longer-term issue is confronting the insurgency, training Iraqi security forces, taking the fight to the enemy, which we're doing," he added