* N.Korea warns goodwill, dialogue with South could end after Olympics
* U.S. and South Korea postponed regular joint exercises
* Pyongyang criticises Pence visit to Olympics (Adds South Korea on Moon’s call with Trump, paragraph 21)
By Steve Holland and Christine Kim
WASHINGTON/SEOUL, Feb 2 (Reuters) - U.S. President Donald Trump expressed hope on Friday that “something good” could come from North Korea’s participation in the Winter Olympics in South Korea, even after Pyongyang warned it would not “sit idle” if Washington and Seoul resumed military exercises after the Games.
Trump met North Korean defectors at the White House on Friday and said the Olympics could serve as an indicator as to whether the crisis over North Korea’s development of nuclear weapons capable of hitting the United States could be resolved.
North Korea has not tested a missile since November and resumed inter-Korean dialogue in January, leading to agreement on its Olympics participation and easing tensions after a year of escalating rhetoric between Pyongyang and Washington.
“It’s a very tricky situation,” Trump told reporters. “We’re going to find out how it goes. We think the Olympics will go very nicely and after that, who knows.”
He said he was not trying to send a message to North Korea by meeting the defectors. “They were here and I said ‘let’s tell your story’.”
Asked if there was more Washington could do to resolve the problem, Trump said his administration was doing a lot but its options were limited given concessions by previous presidents.
“We ran out of road,” he said. “We have no road left. So we’ll see what happens, but in the meantime, we’ll get through the Olympics and maybe something good can come out of the Olympics. Who knows?”
The North-South talks, the first in two years, came after Washington and Seoul agreed to push back a routine military drill until after the Olympics and Paralympics. The Games begin next week and run until March 18.
In a letter to the United Nations published by North Korea’s official news agency, North Korean Foreign Minister Ri Yong Ho warned against resuming the drills, which Pyongyang sees as practice for invasion.
He said that whenever the drills took place “the peace and security of the Korean peninsula were gravely threatened and the inter-Korean mistrust and confrontation reached the top, thus creating great difficulties and obstacles ahead of hard-won dialogues”.
“We will make every effort to improve inter-Korean relations in future, too, but never sit idle with regard to sinister act of throwing a wet blanket over our efforts,” Ri said.
He accused the United States of misleading public opinion by claiming that its pressure campaign, including “their harshest sanctions”, had brought about the inter-Korean talks, when the “dramatic turning point” was thanks to North Korean leader Kim Jong Un.
In a commentary on Friday, North Korea’s state media said Washington was attempting to create a “stage of confrontation” at the Olympics by saying the inter-Korean talks and the positive results that had stemmed from them could “disappear” after the Games.
The Pentagon did not respond to a request for comment on the North Korean statement about the drills, but a spokesman for the U.S. State Department, Mike Cavey, said: “The United States and our allies and partners in the region have long conducted routine exercises to maintain readiness. These exercises ensure we are trained for combined joint operations.”
Trump’s administration has warned that all options are on the table, including military ones, to resolve the crisis.
While it has repeatedly said it prefers a diplomatic solution, Trump has exchanged threats with Kim and U.S. officials have said the president and his advisers have discussed a preventative “bloody nose” strike on North Korea, alarming experts who warn that this could trigger catastrophic retaliation, especially on South Korea.
U.S. officials have said the debate on military action has lost some momentum as a result of the intra-Korean talks, which Trump has called a “good thing” and credited to his tough stance.
Joseph Yun, the U.S. special envoy on North Korea, said on Thursday he did not think the administration was close to triggering military action.
The White House said on Friday that Trump and Japanese Prime Minister Shinzo Abe spoke by telephone and discussed an expanded missile defense system and other efforts to boost Japan’s defenses amid the tensions over North Korea.
Trump also spoke to South Korean President Moon Jae-in about human rights in North Korea and trade between the United States and South Korea, the White House said.
South Korea’s presidential Blue House said Moon had expressed hope that the momentum of improved North-South relation would go on and that U.S. Vice President Pence’s visit “would be an important prelude for that”.
North Korea criticised Pence’s pending visit to the Olympics and accused Washington of halting improvements in inter-Korean relations.
Last month, a White House official said Pence planned to use his attendance to try to counter Kim Jong Un’s efforts to “hijack” the games with a propaganda campaign.
Twenty-two North Korean athletes will compete in the Olympics, including 12 who will play in a unified women’s ice hockey team. The other 10, including a figure skating pair, arrived in South Korea on Thursday.
North Korea has also agreed with South Korea to send a 230-strong cheering squad, as well as an orchestra and taekwondo performance team.
However, a joint cultural performance planned in a North Korean mountain resort was called off this week by Pyongyang, which blamed South Korean media for encouraging “insulting” public sentiment towards the North. (Reporting by Christine Kim in Seoul, Steve Holland, David Brunnstrom, Susan Heavey and Doina Chiacu in Washington; Writing by David Brunnstrom; Editing by Simon Cameron-Moore and James Dalgleish)