Keith B. Richburg, Jakarta – With a smile, a wave and a clenched fist thrust defiantly in the air, East Timorese resistance leader Jose Alexandre Xanana Gusmao emerged from prison today to be driven to a refurbished Jakarta bungalow, where the nation's best-known guerrilla leader and political prisoner begins a new role at the center of negotiations over the future independence of his disputed homeland.

Xanana has been in prison since he was captured by Indonesian troops in 1992 while leading the Fretilin guerrilla movement fighting Indonesia's occupation of East Timor. His life sentence was later commuted to 20 years, but he was moved today to a form of "house arrest" as part of a deal with government officials to allow Xanana to take part in intensifying talks between the United Nations and Timor's former colonial power, Portugal, aimed at resolving the 24-year-old conflict.

If East Timor is granted independence – and the Indonesian government has now said that is a possibility if a current autonomy offer is rejected – then Xanana, 52, a Jesuit-trained poet who has become the recognizable face of Timorese resistance, is widely considered most likely to become the new nation's first president.

Xanana is still in custody, but his move today was nonetheless an unmistakable sign of how far Indonesia has moved in its willingness to abandon a chunk of its territory, and to open a dialogue with a man once considered a dangerous separatist. Today's scene of Xanana at his new house, surrounded by cheering supporters with a large flag of independent East Timor, was another startling reminder of the changes that have swept Indonesia since the fall of president Suharto ushered in a new period of openness and democratic reform.

When he arrived at the house, surrounded by a crush of journalists and chanting supporters, Xanana urged a halt to the fighting, and asked all sides to be patient while he begins finding a solution to the Timor dispute.

"I feel that I have been given a very heavy task, and I have to do it. That's why I am here," the soft-spoken Xanana told reporters. "I feel that with talks with East Timorese from all sides, I can create an East Timorese nation."

"In my opinion, the priority now in solving the problems of East Timor is to create a peaceful climate," he said, adding that all sides in the conflict should "reduce their enmity or hostility" to make his job easier.

Indonesia's Justice Minister Muladi, who was at the house to greet Xanana, said: "Xanana is here not only to sit, but also to work, to help solve the problem of East Timor."

Talks in New York this week between the Indonesian and Portuguese foreign ministers, Ali Alatas and Jaime Gama, produced the broad outlines of an agreement, but the two sides still differ over a key issue: Portugal insists on a popular referendum to decide East Timor's fate, while Indonesia wants an alternative method of "consultation" to gauge local sentiment. Indonesia fears that a new referendum on Timor – coming as the country prepares for its own democratic elections in June – could be costly, hard to organize, and might trigger new fighting between rival Timorese factions.

For the many East Timorese who have been fighting the independence struggle, Xanana's move to house arrest was an important step in a long process. But some expressed anger that the rebel leader was not freed unconditionally and allowed to return to East Timor, while others viewed Indonesia's latest independence offer, and its rejection of a referendum, with suspicion.

"Something is not now clear," said Fernando La'Sama de Araujo, general secretary of Renetil, the National Resistance of Timorese Students. "Alatas said if East Timorese reject the proposal for autonomy" they could have independence. "The problem is how to know if East Timorese reject autonomy. [Indonesian authorities] don't want a referendum. They are allergic to a referendum."

"We know the majority of East Timorese people want to be independent," he added.

Antonio Joao Gomez de Costa, a colleague of Xanana's in the resistance and a member of the movement's central committee, said, "Xanana should be released. He should not be here in Jakarta."

East Timor, 1,250 miles east of Jakarta with a population of 800,000, was claimed by Portugal in the 17th century. The Portuguese remained there for three centuries, until a coup in Lisbon brought a socialist government to power that sought to sever links with far-flung colonies. When Portugal withdrew from Timor in 1975, fighting erupted between rival Timorese factions. The socialist-leaning Fretilin emerged on top and proclaimed independence in November of that year.

Nine days later, Indonesian troops invaded East Timor on the pretext of stopping the bloodshed, and in 1976, East Timor was annexed as Indonesia's 27th province. The annexation was never recognized by the United Nations, which still considers Portugal the administrating power. Human rights groups say as many as 200,000 Timorese have died from fighting, starvation and disease since Indonesia's invasion and annexation.

At the time of the invasion, then-President Suharto said he wanted to prevent the leftist Fretilin from turning East Timor into "a Cuba in our backyard."

Today, some of the triumphant young Xanana supporters who showed up at his bungalow wore T-shirts with the face and name of the late Cuban revolutionary Che Guevara, an icon for the Timorese resistance movement.