"The situation is challenging," said Maria-Elena Cowell, a spokeswoman for the Crisis Management Initiative (CMI) foundation organizing the talks.

"Issues on the agenda include security arrangements, special autonomy and provincial elections. Another issue has been the cessation of hostilities," she told AFP.

Jakarta's proposal of offering Aceh limited self-rule instead of full independence is a controversial one that the Free Aceh Movement (GAM) earlier had characterized as a "non-starter".

"Everyone knows that GAM cannot accept a special autonomy," the group's Stockholm-based spokesman Bakhtiar Abdullah told AFP last week, adding however that his movement was "willing to hear and listen" to the government's offer.

As the first day of talks wrapped up late Monday, former Aceh military commander and member of the Indonesian delegation Syarifuddin Tippe told AFP that the controversial offer had been discussed in detail, but that it was unclear whether GAM would accept it.

"I'm not so sure. The talks will continue tomorrow," he said.

The fact that the two parties are talking at all has nonetheless been regarded as a watershed in the dealings between the two warring sides.

When they met for a first round of talks at the end of January, it was the first time they stood face-to-face since May 2003, when the government declared martial law and launched a major military offensive in the province.

Over 12,000 people have been killed since the Free Aceh Movement began fighting for independence for the oil-rich province in 1976, claiming Jakarta plunders its resources and the army commits atrocities against its population.

The renewed efforts to reach a peaceful solution were prompted by a need for international aid to reach the province on the northern tip of Sumatra island, the territory worst hit by the devastating tsunamis in December.

More than 230,000 people were killed in the province alone, and thousands remain homeless.

Although both parties during the first round of talks agreed to "try to refrain from hostilities" while aid operations in Aceh continue, the Indonesian army has acknowledged that more than 200 rebels have been killed since the tidal waves struck.

And even as the new talks got underway on Monday, Indonesia's military announced that one of its soldiers and two civilians had been killed when a group of 30 rebels ambushed around 20 troops who were on their way to carry out tsunami relief work in western Aceh.

The new negotiation round, which is expected to last through Wednesday, may indicate a thawing in relations between the rival parties, but they are approaching the negotiating table with markedly different demands and expectations.

While the rebels have called for "a sustainable ceasefire" and eventually full independence for Aceh, Jakarta has repeatedly said it would only engage in peace talks as long as the rebels agree that the province remains part of the country under a wide-ranging autonomy accorded in 2001.

"The Indonesian position is clear to everybody," an Indonesian government official told AFP on Monday, requesting that his name be withheld.

"We'll know what the result will be when the talks end, but everybody hopes for the best, of course," he added.

Like the first round of meetings last month, the negotiations are taking place at the secluded Koeningstedt estate outside Helsinki, and are being mediated by former Finnish president and career diplomat Martti Ahtisaari.

In an interview with AFP last week, Ahtisaari characterized the new round of talks as "decisive" in determining whether the two sides would manage to reach common ground for further negotiations.

"We don't know what the end result is going to be. In that sense the next meeting will be decisive because after that we'll know if these negotiations will lead to something or not," he said.

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