Jakarta – A ceasefire in Aceh's bloody separatist war is already looking shaky and major issues must be settled to salvage what could be the last chance for peace, an international research group said yesterday.

The deal signed on December 9 between the Indonesian government and the Free Aceh Movement (GAM) "is the best – and maybe the last – chance that the 4.4 million people of Aceh have for a negotiated peace", the International Crisis Group (ICG) said in a report.

"The consequences of failure would be grim and intensified military operations would be all but inevitable," the Brussels-based group said.

The report noted a dramatic drop in violence since the ceasefire began. But a demilitarisation phase which began on February 9 has left major differences unresolved.

"These include how the Indonesian military will relocate as GAM places an increasing percentage of its weapons in designated locations," the report said.

GAM leaders had accepted the concept of autonomy as a starting point for discussions but not as a political end, "and there remains little incentive for the guerilla group to reinvent itself as a political party working within the Indonesian electoral system".

The ICG also warned that the army "is not likely to sit quietly indefinitely if the reduction of violence leads, as appears to be the case, to more organising in support of independence..." It said the provincial government "also constitutes an obstacle to lasting peace because it has such low credibility and is so widely seen as corrupt".

"As long as it is seen to embody 'autonomy', as granted to Aceh under an August 2001 law, many Acehnese will continue to see independence as a desirable alternative."

The research group urged Jakarta to offer GAM more realistic incentives to take part in the political process, including supporting the legal changes that would allow for local political parties in Aceh.

The rebel insurgency has resulted in the deaths of 12,000 people – mostly civilians – since 1976.