Shawn Donnan, Jakarta – Since his government last year brought about what looks like the end of the separatist conflict in Indonesia's tsunami-wracked Aceh province, President Susilo Bambang Yudhoyono has drawn effusive praise internationally.

So impressed was Robert Wexler, US Democratic congressman, that he last week nominated Mr Yudhoyono for the 2006 Nobel Peace Prize, calling the former Suharto-era general a "campaigner for peace".

But for Mr Yudhoyono to cement that reputation he has another long-running separatist conflict to overcome. Emerging as an increasingly important issue for his government – and its profile internationally – is how to resolve the insurgency in the province of Papua, the remote and resource-rich western half of New Guinea.

It is an issue analysts say is likely to be far more difficult to resolve and far more prickly for Mr Yudhoyono's government to tackle in a fiercely nationalist Indonesia. "It's the single most sensitive issue on the political agenda," says Sidney Jones, the Jakarta-based south-east Asia project director for the International Crisis Group, a think-tank.

Home to a BP-led natural gas project as well as the world's largest gold and copper mine, Papua's future is also an economically sensitive issue for an Indonesia still working to regain the confidence of investors almost nine years after the Asian financial crisis.

One reason for the growing profile of the Papua conflict in recent months is pressure on copper and gold producer Freeport-McMoRan over its relationship with the Indonesian military, which it pays to provide security around the Grasberg gold and copper mine.

In separate letters to the US attorney-general and the Securities and Exchange Commission last week, New York city's comptroller – the custodian of US$37 million in Freeport stock held by the city's pension funds – demanded investigations into the New Orleans company's handling of its relationship with the Indonesian military.

The requests were prompted by reports by Global Witness, a UK-based human rights group, and The New York Times detailing Freeport payments to individuals in the Indonesian security forces. Some argue such payments may violate the US Foreign Corrupt Practices Act, although Freeport has denied any wrongdoing.

Additionally, questions remain about the possible role of the Indonesian military in an August 2002 ambush that left three teachers working for Freeport – two Americans and an Indonesian – dead. Although Indonesian authorities this month arrested eight Papuan suspects in connection with the ambush, some people close to the case remain unconvinced.

The arrival in Australia this month of 43 Papuan boat people expected to seek political asylum is also providing a potential test for post-East Timor relations between Canberra and Jakarta, which are seeking to sign a bilateral security pact this year.

Finding a solution to the Papuan conflict is likely to present Mr Yudhoyono's government with a far more complicated task than negotiating peace in Aceh, analysts say.

Advisers to Mr Yudhoyono and analysts both say any resolution is unlikely to come via internationally brokered negotiations but rather by a push for the hearts and minds of disgruntled Papuans.

"The difficulty with Papua is there is not a negotiating partner," says Ms Jones. The separatist Free Papua Movement, she says, is "a small, divided, organisation that controls no territory", and associated political movements are "much more diffuse" than their counterparts in Aceh.

International reservations about Indonesian rule in Papua, though still muted, are greater than they ever were in regards to Aceh, which has been part of Indonesia since its 1945 independence.

From the time it seized control of what used to be called Irian Jaya in 1963, the legitimacy of Jakarta's rule in Papua has come under question internationally and a 1969 vote by a hand-picked group of leaders that led to its formal annexation is widely regarded as a sham.

Indonesia also faces allegations of rights abuses in Papua, and access to the region by journalists is restricted. In its 2004 Human Rights Report (the most recent available), the US State Department said security forces in Papua "murdered, tortured, raped, beat, and arbitrarily detained civilians and members of separatist movements", although "to a lesser extent" than in Aceh.

And there are signs of burgeoning unrest and a resulting clampdown. Reports of demonstrations in Jayapura, the Papuan capital, are increasing in frequency as are reports of young men being arrested for hoisting the outlawed "Morning Star" flag that symbolises Papuan independence.

But Papuan leaders are also growing more assertive. Rev Hofni Simbiak, a member of the Papuan People's Assembly, on which Mr Yudhoyono is hanging many of his hopes, says: "The government's efforts to solve all the problems in Papua seem to be going nowhere."

[Additional reporting by Taufan Hidayat.]