The Prime Minister, Jose Maria Aznar, condemned the decision as "terrorist blackmail" that turned ordinary Basques into "hostages to Eta's demands". But he also insisted he was committed to achieving Basque peace.
Eta blamed "continuing repression" by French and Spanish governments, and said it would instruct gunmen next Friday on when to resume attacks. Madrid had "blocked and poisoned" the peace talks, Eta said in a Basque- language newspaper Gara. "Responding to a pledge to defend the Basque country, the decision has been taken to reactivate the use of armed struggle."
Eta also criticised the region's main democratic Basque Nationalist Party (PNV) for breaking a secret pact struck in the summer of last year. The deal, to help in furthering Eta's aims for Basque self-rule, nudged Eta towards calling the ceasefire that autumn.
In seeking an understanding with the moderate PNV, Eta consciously followed the Northern Ireland example: it saw how Sinn Fein's rapprochement with John Hume's SDLP ended political isolation and paved the way for an IRA ceasefire.
Eta saw the PNV as a similar bridge that could bring it into the democratic political arena, and could deliver objectives. But progress in the Basque country became bogged down, leaving the PNV dangerously exposed. Yesterday it denied there had been a secret agreement. "Eta is lying," the party leader, Xabier Arzalluz, said.
Only one meeting has taken place between Eta spokesmen and representatives of Mr Aznar's government since the truce - in May in Switzerland. The encounter was followed by recriminations. Eta accused the government of leaking details in pursuit of political advantage, and Madrid said the separatists were "afraid of peace".
Each side restated demands unacceptable to the other. Madrid insisted that Eta declare a permanent end to violence before it would consider political issues. Eta demanded that Basque self-determination be on the agenda, including a referendum on self-rule.
For more than 14 months there have been no terrorist murders in the Basque country - a reprieve that prompted relief and optimism among Basques for whom violence had become part of the political landscape. None the less, Eta kept up a barrage of street violence, while French and Spanish security forces cracked down on Eta's clandestine military structure and made several high-profile arrests.
The immediate losers are Eta prisoners. The government refused to accept Eta's demand for an amnesty, but has during the ceasefire brought individual Basque prisoners to jails nearer home, or reduced sentences. This process is to be frozen.
Mr Aznar's response yesterday was understandably cautious. He was hoping to go down in history, and present himself in general elections next March as the man who launched the Basque peace process. He will be reluctant to drop this vote-winning claim.
THE THIRTY YEARS' WAR ON MADRID
UNTIL THE ceasefire of September last year, Eta carried out bombings and assassinations for more than 30 years, causing more than 800 deaths, in pursuit of an independent Basque homeland. Persecuted by Franco, Eta killed the dictator's designated successor Luis Carrero Blanco with a car bomb that helped end the dictatorship.
In 1995, the conservative leader Jose Maria Aznar escaped death by a miracle when a huge car bomb wrecked his armoured Audi. That summer police foiled an attack planned upon King Juan Carlos.
When Mr Aznar's Popular Party came to power in 1996, Eta launched an assassination campaign against Basque PP politicians, culminating in the death of the councillor Miguel Angel Blanco in July 1997, days after he had been kidnapped with a death warning.
Repulsed by such cold-blooded cruelty, millions thronged the streets against Eta in the biggest demonstrations Spain has ever seen. Eta extended feelers to the democratic Basque Nationalist Party, a partner to Mr Aznar's minority government, hoping to build stepping stones towards talks in Madrid.