President Obasanjo has made himself popular among foreign governments and creditors for his clampdown on corruption in Africa's most populous country. They feel the oil-rich nation is becoming investor-friendly following the return to civilian rule.
But after the security forces razed a village in south-eastern Nigeria and the president ordered ethnic minority militants in Lagos to be shot on sight, critics say the country is sliding back into a culture of human rights abuse.
"Obasanjo is reverting to type,'' said Beko Ransome-Kuti, a leading dissident, in reference to the President's previous incarnation as a military dictator between 1976 and 1979. President Obasanjo, an army general, was popularly elected in February after a campaign backed by the influential military old guard.
In the last few days, details have emerged of two recent security clampdowns on ethnic unrest, both of which were apparently brutal and may have claimed hundreds of lives.
The most severe was in Odi, a village in the oil-producing Bayelsa state, which soldiers are understood to have razed and torched two weeks ago to avenge the deaths of 12 policemen. `"We have taught them a lesson. No village will want to go through what that village went through,'' an army captain told reporters who visited the scene.
The police officers' deaths have been blamed by the authorities on youths from the Ijaw tribe and, according to the captain, the entire village of Odi was punished because it had "tolerated these criminals''.
Bayelsa state is part of the oil-rich delta region where successive years of abuse by the authorities have given rise to gangs of armed youths who clash over tribal territory in an attempt to gain the upper hand in dealings with foreign petroleum companies and their agents.
In Lagos 10 days ago, a vast market area straddling the Mile 12 and Ketu suburbs was partly wrecked in fighting involving two tribal groups, the Yorubas and the Hausas. At least 100 people are believed to have died in two days of rioting.
Here, the police were not blamed for the deaths - in fact they were accused of inaction - but President Obasanjo later ordered them to "shoot on sight'' members of the Oodua People's Congress (OPC), a militant group of Yorubas.
Dr Ransome-Kuti, who was imprisoned from 1995 to 1998 - virtually the entire length of General Sani Abacha's regime - is now the treasurer of OPC, which campaigns for semi-autonomy for the Yoruba-dominated and economically powerful south-west.
He denies that OPC youths were behind the Lagos rioting. "It was just a clash between market people,'' he said yesterday. But he added: "Things have got so bad and we are so desperate that every Yoruba would now be prepared to take up arms.''
Nigeria has a population of more than 100 million people who belong to more than 200 tribes. The Yorubas are in the majority in the south-west, which includes Lagos.
The northern Hausa-Fulanis, who answer to powerful emirs, have since British times been seen as the administrators of the country, producing its military top brass. In the east, Igbos dominate; their region declared autonomy in 1967, leading to the three-year Biafra war.
In the 32 years since the Biafran war, Nigeria has largely been led by juntas, which argued that only they could keep the country from splitting along ethnic lines.
Even though President Obasanjo is a Yoruba and now a civilian, he was seen, during the elections in February this year, as an acceptable candidate for the military.
This has put him in a difficult position as he tackles corruption and still-powerful elements of the military establishment. Some observers believe that ethnic clashes, especially those in Lagos 10 days ago, are fuelled by disgruntled elements in the military who see the anti-corruption net beginning to close in on them.
Dr Ransome-Kuti, brother of the late musician, Fela, whose Lagos venue was burnt down in 1977 under the orders of General Obasanjo, believes tribal trouble will escalate "until the government realises that the ethnic groups must sit down and talk''. But his call for a sovereign national conference is seen by the Nigerian government as tantamount to providing groups such as the OPC with a platform for declaring autonomy.
Between the government, the military, the former military, the tribes and the oil interests, Nigeria seems to have reached an impasse, said a Lagos property developer who is a Yoruba.
"I do not see what Obasanjo can do. If he uses force to stop rioting, he is accused of human rights abuses. But after years of brutality, that is all some people understand," he said. "If he does not intervene, we will have ethnic rebellions on our hands."