By Mantik Kusjanto and Sofia Hilden
HELSINKI, July 13 (Reuters) - Peace talks for Indonesia's Aceh province tackled on Wednesday the sensitive issue of the rebels being allowed to form a political party if they end their 30-year-old struggle against Jakarta, which opposes such a move.
The fifth round of peace talks is under way in Helsinki with signs that, now the Free Aceh Movement (GAM) has dropped demands for full independence, a truce could be signed in August ending a conflict that has cost over 12,000 lives.
But GAM's insistence on being allowed to contest elections in Aceh, a devoutly Muslim province on the northern tip of the island of Sumatra, could prove a sticking point.
Jakarta fears this would require changes to electoral laws and could spark demands from other ethnic or religious groups. Chief security minister Widodo Adi Sutjipto said the government was "firm" on the issue and would not back down.
Under existing law, parties must have a headquarters in Jakarta and branches in more than half of the 33 provinces.
But GAM sounded equally insistent. Chief spokesman Bakhtiar Abdullah told Reuters: "If they (want) an agreement I think this is one of the crucial issues that has to be resolved. Otherwise, there will be no agreement."
RESPONSE TO TSUNAMI
The talks, mediated by former Finnish President Martti Ahtisaari's Crisis Management Initiative, were prompted by last December's tsunami, which laid waste to the province and left 170,000 Indonesians dead or missing.
Indonesian Information Minister Sofyan Djalil told reporters in Helsinki he was "very optimistic we can reach a conclusion by the end of these talks", since most points for a draft memorandum of understanding (MOU) had been discussed.
Talks would now focus on matters not yet agreed -- such as the political issue.
"Hopefully by the next meeting we can sign a final MOU," Djalil said, adding since the negotiations began in January the very wide gap between government and rebels had been narrowed.
"I like to say we have built the bridge already and I think we'll cross it," he said.
In a sign that a truce might be close, a senior Indonesian soldier and European Union ceasefire monitors attended the talks to discuss how to implement a ceasefire on the ground in Aceh.
An Indonesian major-general who has led a military crackdown against GAM met a top adviser to EU foreign policy chief Javier Solana to study issues such as collecting weapons, redeploying Indonesian military forces and granting an amnesty to rebels.