Hope grows of deal on Peru hostages

Outside, carol singers sang "Silent Night" and relatives prayed. Inside, more than 100Latin American and Asian hostages attended Mass under the guns of their Marxist captors.

One captive walked free, released by the rebels yesterday afternoon, but it was a grim Christmas for the others held in the besieged Japanese ambassador's residence in Lima, Peru. They had spent Christmas Eve in almost complete darkness, with power, water and phone lines still cut. The hostages include Pedro, brother of President Alberto Fujimori of Peru, the country's Foreign Minister, Francisco Tudela, its anti-terrorism chief, several judges, six ambassadors and dozens of Japanese executives.

The estimated 16 guerrillas of the Tupac Amaru Revolutionary (MRTA) Movement were said to be looking fresh and showing no sign of backing down on their demands for the release of several hundred jailed comrades, transport to safety and an unspecified ransom figure.

The Peruvian government reacted angrily yesterday to the news that Uruguay had apparently done a deal with the hostage-takers, releasing two jailed Tupac members in return for the freeing by the guerrillas of its ambassador to Peru, Tabare Bocalandro, on Christmas Eve. Peru withdrew its acting ambassador to Uruguay in protest at the move.

The possibility of a deal could be significant. First, it was the first concession the guerrillas had won since storming the Japanese ambassador's reception nine days ago. Secondly, it showed that negotiations were going on, presumably through the International Red Cross, despite the hard-line statements by the MRTA and the Peruvian and Japanese governments.

Most importantly, it suggested the guerrillas are in negotiation with their prisoners. Diplomats say that could mean multi-million dollar ransoms from the Japanese companies whose executives they are holding.

Speculation is growing that the guerrillas are negotiating a deal under which they and at least some of the hostages are flown to Cuba, where President Fidel Castro is known to support their Marxist views. Under that theory, Mr Castro, it is believed, would receive a cut of the ransom in return for weapons and help in re-infiltrating Peru.

t Moscow (AP) - President Yeltsin yesterday proposed that the G7 group of leading industrialised nations, together with Russia, should send anti-terrorist forces to Peru.