Jenny Grant, Jakarta – Local leaders yesterday rejected a breakthrough agreement to discuss autonomy for their province which they said sidestepped demands for a referendum and the release of jailed resistance leader Xanana Gusmao.

Businessman and former parliamentarian Manuel Viegas Carrascalao said the accord, reached at UN-brokered talks between Indonesian and Portuguese foreign ministers, was a "wrong step". "It is fruitless. We want a referendum first," said Mr Carrascalao.

A member of the Students' Solidarity Council, Felisberto de Araujo Duarte, said that although the new plan was a "breakthrough", it fell short of student demands for a referendum. "I'm disappointed that Xanana [Gusmao] will not be released as part of the deal and East Timorese were not included in the talks," he said from Dili.

Nobel peace laureate and East Timorese independence leader Jose Ramos-Horta, while welcoming the talks, ruled out taking part until Indonesia frees Gusmao. "Xanana is the only political leader with real acceptance and credibility among the people of East Timor," he said from Lisbon.

Portugal and the resistance had said Gusmao's release should be a precondition of any settlement. Lisbon put aside the demand for the sake of progress at the New York talks, but people in Dili said they felt betrayed.

Mr Gusmao's sister, Armandina dos Santos, said East Timorese had been coerced into accepting autonomy, despite large street protests demanding self-determination. "I can't accept this new agreement because we have the right to choose our future too. If we don't have that chance we will live in conflict for good," said Ms dos Santos. She said forced autonomy would create further friction and mistrust among the 800,000 East Timorese.

Local legislator for the Indonesian Democracy Party Maria Olandina said: "What is the autonomy they are now discussing? It's the autonomy that Indonesia wants to finally close the East Timor case," she said. A Western diplomat said East Timorese activists fear if they give ground on the talks they will lose the international spotlight.