Localization of $\frak{u}$-modules. II. Configuration spaces and quantum groups

This paper is a sequel to "Localization of $\frak{u}$-modules. I", hep-th/9411050. We are starting here the geometric study of the tensor category $\cal{C}$ associated with a quantum group (corresponding to a Cartan matrix of finite type) at a root of unity. The main results establish isomorphisms between homogeneous components of irreducible objects in $\cal{C}$ and spaces of vanishing cycles at the origin of certain Goresky-MacPherson sheaves on configuration spaces; establish isomorphisms of the stalks at the origin of the above GM sheaves with certain Hochschild complexes (which compute the Hochschild homology of a certain "triangular" subalgebra of our quantum group with coefficients in the coresponding irreducible representation); establish the analogous results for tensor products of irreducibles. In geometry, the tensor product of representations corresponds to a "fusion" of sheaves on configuration spaces --- operation defined using the functor of nearby cycles.