John McBeth, Jakarta – President Abdurrahman Wahid and the Indonesian military are engaged in a renewed contest of wills, this time over the rapidly deteriorating security situation in westernmost Aceh province, which could put another nail in the president's political coffin.

Army generals want to mount limited offensive operations against thousands of well-armed separatist rebels. Wahid is baulking, insisting that any new security measures should only be aimed at restoring production at Exxon Mobil's onshore gas fields, which have now been idle for nearly a month.

Only recently, the government officially classified the Free Aceh Movement, or GAM, as a separatist organization – a move that was widely seen to clear the way for tougher measures. But little has happened since then. "There's always a tug of war between negotiation and military operations," a senior palace official told the Review.

"The president prefers negotiation. He doesn't believe in military actions. He refuses to use the word 'operation' and the word 'military'." The official says Vice-President Megawati Sukarnoputri has been pushing for Wahid to sign a presidential instruction on a multi-faceted action programme "because she likes the president to be committed."

With the rift between Wahid and the military widening and the ailing president under increasing pressure in parliament to step down, senior generals have been gravitating around the vice-president, a fervent nationalist who shares the army's hard-line stance on separatist issues.

If the halt in production at Exxon Mobil may have served as a convenient national-interest pretext for military action, Wahid isn't budging – at least not yet. Three weeks ago, four territorial battalions – drawn from among the 30,000 soldiers and police now stationed in Aceh – were moved into defensive positions around the company's facilities southeast of the industrial town of Lhokseumawe.

But the president hasn't allowed a specially trained anti-guerrilla unit – still waiting to be sent to Aceh – to launch what Political Coordinating Minister Bambang Yudhoyono calls a "highly targeted" campaign across the Aceh hinterland. Asked if the military intended that this unit carry out sweep operations around the North Aceh installations as well as other parts of the province, a senior Indonesian military official responds: "Anywhere it is considered necessary to restore law and order." The police, he says, will be responsible for law enforcement, while the military will hunt down "armed bandits" – a task the police have proved incapable of handling.

With the government refusing military requests to declare a state of emergency, the army has to secure presidential approval before it can carry out peacetime operations. Analysts believe Wahid is hesitating to deploy the anti-guerrilla unit because of memories of a series of brutal military crackdowns in the 1990s, which traumatized Aceh's population and fuelled the move for independence from Jakarta's heavy-handed rule.

"If anything goes wrong," says one Western diplomat, "then the blood will be on his hands." Plenty has gone wrong already in a province where the military and the police have yet to demonstrate they have learned the lessons of the past.

Yudhoyono insists the military operations are only one part of a comprehensive six-point programme, now being drafted, focusing on political, economic and social approaches. But efforts to find a peaceful solution remain bogged down, in part because GAM itself is divided into eight different factions, and there is little confidence in the ability of the Indonesians to coordinate an effective civil-action plan on the ground.

Indeed, Western diplomats say they detect signs of a strategic drift. "What we don't know is if the game is to find and destroy Aceh Merdeka [GAM] or if it is to restore government control," says one. "That would seem to require two different approaches." More than 370 soldiers and police have been killed since the start of a ceasefire in June 2000 that was meant to be a springboard for a negotiated settlement.

Although there are now 2,000 troops guarding Exxon Mobil's facilities, they have done little to improve security for the company's 800 employees and more than 2,000 contractors who normally commute between the three fields, which are strung out over a distance of 50-60 kilometres.

"The real problem is the ability of workers to go to and from work and to live in a safe environment," says a company executive. "This is about the overall security situation in Aceh, not the situation behind the fences."

Indonesian and Western intelligence reports indicate an estimated 2,000 armed guerrillas – some from as far away as the traditional hot spot of Pidie on the northern coast – have moved into North Aceh district in recent weeks in a calculated move to boost rebel tax collections and to bleed the state of much-needed revenue by forcing the shutdown of the fields.

The subsequent cut-off in supplies to the giant Arun liquefied- natural-gas facility is costing the government $100 million a month in lost LNG shipments, not counting losses from the shutting down of related industrial plants.

Industry experts say the longer production is halted, the longer it will take Exxon Mobil to get its gas fields up and running again. That in turn will deal a further blow to the country's reputation as a reliable LNG exporter.

The state-run Pertamina oil company says Bontang, the country's second LNG production facility in East Kalimantan, will only be able to take up the slack until July or August. Under pressure from Japanese and South Korean buyers to come up with a timetable for re-opening Arun, officials have been issuing conflicting statements about when operations might resume. Exxon Mobil, for its part, continues to say that there have been no improvements in security since it shut down its fields.

Wahid at one point claimed Exxon Mobil had halted its operations in an effort to renegotiate its contract. The company responded by dispatching two senior executives from Houston to disabuse him of that notion and to explain its security concerns in detail. Exxon Mobil has had 50 vehicles stolen since pressure on the company was intensified in mid-1999. But much more troubling have been recent efforts to target vehicles with command-detonated landmines and the lobbing of a mortar round into a supposedly secure compound. Like the president himself, Exxon Mobil is finding it can be very lonely in the middle.