The offer made by Mr Habibie is conditional on Portugal and the international community recognising Indonesian sovereignty of the island it annexed in 1976. It has been rejected by East Timorese pro-independence groups.

Nevertheless, the president's move has been seen by correspondents as the first real sign from the Indonesian Government that it is willing to address one of the most serious causes of friction in its international relations.

Annexation

Indonesia invaded East Timor in 1975 after the collapse of Portugal's colonial authority. In 1976 it annexed the territory, proclaiming it the 27th province of Indonesia. This was not recognised by the United Nations.

During the conflict and the famine that followed the military takeover, some 200,000 people died, from a total population of 650,000.

International calls for Indonesia to respect human rights in East Timor followed, accompanied by anti-government protests which were violently suppressed by the armed forces.

One such clash in 1991, in which scores of people were killed when the armed forces fired on a peaceful demonstration in the East Timorese capital Dili, caused an international outcry.

Resistance

Students at a pro-independence rally in Dili - under Suharto such protests were invariably broken up

The leader of East Timorese guerrillas opposed to Indonesian rule, Xanana Gusmao, was arrested in 1992 and sentenced to a 20-year prison term in Jakarta.

The Indonesian armed forces still face resistance by about 200 guerrillas hiding in the forests and mountains.

Indonesia's new President BJ Habibie has said all East Timorese political prisoners, including Mr Gusmao, could be eventually freed if Indonesia's sovereignty is recognised.