Simon Elegant – Patricia Spier was heading home from a mountaintop picnic in Indonesia's eastern province of Papua when the ambush began. Out of nowhere, a hail of automatic-weapon fire perforated the two Toyota Land Cruisers in which the American schoolteacher and a group of her colleagues and husband were traveling in.

"I was shot in the back and fell to the floor," Spier recalls. "The attackers kept shooting and shooting for about 45 minutes ... it felt like thousands of bullets and pieces of shrapnel [were] ripping through the vehicle ... People were screaming."

By the time the gunfire stopped, three people were dead, including Indonesian instructor Bambang Riwanto and two Americans: Edwin Burgon, the 71-year-old principal of the International School of Tembagapura; and Spier's husband Rick, 44, a fourth-grade teacher from Colorado.

For months after the August 31 attack, it seemed likely that no one would unravel the mystery of why these teachers were targeted on a mountain road leading to the giant Grasberg mine, which is run by P.T. Freeport Indonesia (PTFI), a subsidiary of New Orleans-based Freeport-McMoRan Copper & Gold. The military blamed the attack on the Free Papua Movement, a ragtag group of Papua rebels fighting a desultory war to free the province from Indonesian rule, but produced scant evidence to back the claim. Meanwhile, relatives of the slain teachers have grown increasingly frustrated by the inability of local police and the US government to find answers. "We respected our government and Freeport," says Dirk Burgon, son of the dead school principal, "and nothing has happened."

Until now. Reports are finally leaking out that may shed some light on the case. A preliminary police-investigation document obtained by Time posits that members of the Indonesian military-who were supposed to protect miners, international teachers and other expats connected to the Grasberg mine-may have been behind the killings, not the separatist Free Papua Movement.

The evidence cited by police is at best circumstantial but intriguing. Investigators found 100 spent shells in the area of the attack, yet the poorly armed rebels are not known to waste precious ammunition. In addition, the military produced the body of an unidentified Papua man shot by soldiers the day after the ambush, and claimed it was one of the assailants. But an examination of the corpse revealed that not only had the man been dead longer than the military insisted, he also had a medical condition-massive enlargement of the testicles-that would have made it difficult for him to be a guerrilla fighter. Eyewitnesses say that the gunmen wore military style paraphernalia such as boots and camouflage face paint, although no insignias were seen. The report concludes that it is "very possible" there was military involvement in the attack.

Indonesian soldiers have been accused of murder before. Last week, during a tribunal on the 2001 killing of Papua independence leader Theys Eluay, an army officer admitted that Eluay had been strangled to death by a private. The officer testified that the private had been ordered to pressure Eluay to stop agitating for independence. The controversy over the killing of the teachers is now intensifying questions about the dependability of Indonesia's armed forces. At the same time it complicates relations between Indonesia and the Bush Administration, which wants to preserve ties to the world's largest Muslim nation to bolster its global war on terror.

Since the deadly nightclub bombings on the Indonesian island of Bali – an attack that was recently shown to have al-Qaeda connections-the US has fostered closer links with Indonesia's military, offering funding and training to help root out dangerous Islamic elements in the nation's society. If soldiers were involved in the murder of Americans, that effort could be derailed-as could Indonesia's broader standing with the US "This is not an issue where just the military-to-military component of our relationship could be affected," says a senior US official. "It's the whole relationship." Nevertheless Washington has made it clear in recent weeks that it is determined to get to the truth. In December, George W. Bush sent a personal envoy to Indonesian President Megawati Sukarnoputri to underline the importance he attached to finding the culprits in the Papua killings. With Megawati's consent, four FBI agents were dispatched to Indonesia, arriving in Jakarta on January 23 and traveling to Papua earlier this month to begin an inquiry into the attack. The FBI has conducted two previous probes into the matter but lacked the authority until now to complete a thorough investigation.

Indonesia also has its own team of police and military investigators on the case, but it's not clear how effectively they are navigating this political quagmire. No arrests have been made and the former deputy chief of police in Papua, Brigadier General Raziman Tarigan, was recalled to Jakarta in mid-January after speaking publicly about the possibility of military involvement in the killings.

There is more at stake for Jakarta than just a diplomatic breach with Washington, grave though that would be. The Grasberg mine sits on the largest gold deposit and the third largest copper deposit in the world. The mine supports a company town of some 110,000 employees and residents; PTFI, its operator, is one of the largest individual contributors to the Indonesian government's coffers, paying taxes last year on a revenue of $1.9 billion. "I think a lot of people will be concerned if the people who are supposed to be protecting us turn out to be the same ones who carried out the attack," says an American PTFI contract worker who asked to remain anonymous. "Several families I know have already left, and I'm pretty ready to go myself." In addition to paying hefty taxes, PTFI also gives millions of dollars a year directly to the armed forces in exchange for security services. The Indonesian military receives only about a third of its budget from Jakarta, so it must raise the rest by other means. A 2002 report by the International Crisis Group, a Brussels-based research institute, says the army posted in Papua derives a large portion of its income from "logging and other activities and protection fees paid by resource companies." PTFI has little choice but to boost its contribution in troubled times. In 1996, after a riot by local tribespeople halted mining operations, the company agreed to spend $35 million to construct military barracks and additional facilities, according to a report by the Robert F. Kennedy Memorial Center for Human Rights.

Indeed, some foreign analysts and diplomats believe the company's deep pockets may have provided a motive for the ambush. PTFI officials decline to comment on any aspect of its security operations, but a source close to the company says PTFI had been in discussions with local military officers prior to the attack about the possibility of reducing the firm's reliance on the nearly 650 soldiers and police who guard the mine. That could have meant a sharp drop in the cash given to troops. In other words, goes the theory, the teachers may have been slaughtered by rogue elements in the military who wanted to send a message to the mining company that full payments should continue. Military officers strongly deny any connection to the killings. "I am sure my men wouldn't do that," says Colonel Mangasa Saragih, the district army commander overseeing the town of Timika near the Grasberg mine. "We do not want to cover anything up." A US official familiar with the case acknowledges that, while there are indications of military involvement, "investigators have not yet gathered enough evidence that would stand up in court." Indeed, the preliminary police report seen by Time offers no smoking gun. Dirk Burgon fears that his father's killers won't be found because the political price of justice – broken bonds between Indonesia and the US, embarrassment for the Indonesian government – is too high. On February 20 the Bush Administration's budget package is expected to be passed by Congress. The package includes $400,000 in funding for the Indonesian military – a modest sum but symbolically important. For one thing, it would override a 1999 congressional ban on providing money to the country's armed forces – a punishment for alleged human-rights violations by troops during East Timor's drive for independence. If funding is approved, the Indonesian military might appear "to have exonerated itself of the implication that its ilite special forces recently murdered two US teachers," says Kurt Biddle, coordinator of the Indonesia Human Rights Network.

Burgon says that in January he met with members of the FBI, US State Department and congressional aides to press for a resolution to the case. The reaction to his lobbying gave him little solace. "We were told [an investigation implicating soldiers] was not conducive to the Pentagon's goal of restoring ties with the Indonesian military," Burgon says. If so, the truth about the ambush might prove to be another casualty of America's all-consuming war on terror.

[Reported by Jason Tedjasukmana/Timika.]