By Joe Ariyaratnam
KILINOCHCHI, Sri Lanka, July 18 (Reuters) - Tamil shopkeeper Sellathurai Paramsothy knows only too well the price that he and thousands of fellow Sri Lankans will pay if Tamil Tiger rebels make good on a threat to break the island's longest ceasefire.
The 59-year-old had to flee the northern rebel stronghold of Kilinochchi in the mid-1990s after the Liberation Tigers of Tamil Eelam (LTTE) broke a previous truce during their two-decade war for self-rule, and he was out of a job for years.
Now, with a fourth ceasefire in peril as rebels and military accuse each other of waging a silent war of attrition in the restive east, tens of thousands of people displaced by conflict and by the tsunami in December, are hoping peace holds.
"The last time war broke out, I moved to a village 12 miles (20 km) away," Paramsothy said as he tended his store on Monday. "I did not do any business for almost 5 years. I don't want to go through that experience again."
"Both parties may quarrel and there will be problems for all of us, but I am hopeful war will not break out in the north."
The head of the LTTE's political wing, S.P. Thamilselvan, warned on Sunday of an imminent return to war. He said the rebels would carry arms in government-controlled areas from now on to guard against a continuation of the recent spate of deadly attacks.
Analysts and diplomats say the Tigers' latest threat could rupture the truce and herald a return to fighting after a three-year truce.
Dozens of rebel cadres, police, soldiers and civilians have been killed in recent months despite the ceasefire in 2002 that gave Sri Lanka its longest taste of relative peace since the conflict began in earnest in 1983.
"It all depends on whether the government decides to look the other way as part of confidence-building measures, or whether the state will respond," said Kethesh Loganathan of the Centre for Policy Alternatives, a public policy institute.
"The key international actors will not take it kindly if the LTTE was to embark on a war," he added.
But the Nordic monitors of the truce were more optimistic.
They said a Tiger withdrawal from military-held areas to pockets of jungle they control, interpreted by some as preparation for war, is actually helping calm tensions because cadres are no longer exposed to attacks blamed on renegades.
"The LTTE has pulled out from their political offices in the north and east and it's calm and quiet," said Hagrup Haukland, head of the Nordic Sri Lankan Monitoring Mission.
"I think we'll find a solution to this," he added.
Under the terms of the ceasefire, the Tigers must formally give 14 days notice in writing to mediator Norway before pulling out -- which they have yet to do.
Intense political wrangling, which has hampered efforts to convert the ceasefire into a permanent peace after a conflict that has killed over 64,000 people and straight-jacketed the $20 billion economy, has clouded the picture further.
President Chandrika Kumaratunga's ruling coalition split in two last month over plans to share $3 billion worth of tsunami aid with the rebels, reducing it to a hamstrung minority in parliament.
But once the aid pact was signed, raising hopes that it could serve as a platform to resume peace talks that stalled two years ago, the Supreme Court froze it -- angering the Tigers and fanning fears of a return to hostilities.
"We had to move to four different places because of the war," said 26-year-old Siva Malini, who works as a telephone operator in Kilinochchi. "I couldn't do my 'A levels' because of it. If war really erupts, we'll be forced to move again."