The lights burned far into the night outside an obscure brick-and-glass building on the outskirts of this small town, where young South Moluccan men skip endless cups of tea and plot ways to turn a quixotic dream into a new nation.

A framed, blown-up photograph of Dr. Christian Soumokil, a South Moluccan freedom fighter executed by the Indonesian Army in 1966, hangs on the wall, bearing the inscription: "He dies, but never surrenders."

Huddled around large tables, the men ponder their most urgent, immediate task - how to help break the stalemate between the Dutch government and 14 of their brethren who still hold 60 hostages after seizing a local train and school eight day ago. Friday 105 captive schoolchildren were released.

The 14 gunmen announced today that they are ready to use outside mediators to spur the negotiations. Rumors circulated that Dutch authorities might turn to a several young Moluccans to assist the bargaining. The terrorists no longer demand a package settlement and seem willing to compromise. They said yesterday that they would give up their hostages before leaving the country.

The terrorists' intended destination remains unknown. Beuin, in Central Africa, said today that it welcomes the South Moluccan gunmen, but the Dutch government has declined to respond.

The condition of the 56 hostages on the train seems satisfactory.An ailing pregnant woman has improved and is under the care of a medical student, a fellow hostage. The Dutch government has asked to send a gynecologist aboard, but the gunmen have not responded. Four teachers remain in the school as hostages.

The young South Moluccans speak with understanding of the motivations of the Moluccans aboard the train and in the school.

"Those guys (the gunmen) could very well have been us," Martin, a South Moluccan in his late 20s who works as an architect's assistant, said during a break in a midnight strategy session. "We disagree with taking the kids, but we also want the Dutch to stop trying to integrate us here and to put pressure on Indonesia to give us back our country."

The children of loyalist soldiers shipped back to the Netherlands from the wars of independence in the East Indies some 30 years ago, most South Moluccan youths were born in dilapidated barracks here and have never seen their cherished homeland.

As staunch loyalists to the Dutch throne, older South Moluccans deplore the armed attacks against the state by their offspring. After arriving with little but their soldiering talent, most middle-aged Moluccan men have resigned themselves to an ethnic family life at night and a Dutch factory job during the day.

But young South Moluccans, nurtured on their parents' romantic tales of their homeland, have developed a fierce dedication to the ideals of an independent nation. They feel compelled to accomplish this role before their children - the third generation lost interest and melt into the Dutch society.

One of the rare young Moluccans here who was born in his homeland spoke wisfully of the islands taken over the young Moluccans say illegally by Indonesia when the Dutch pulled out: "It is incredibly beautiful - the Hawaii of Indonesia," he said as his Dutch-born comrades nodded in repturous approval.

While they may shrink from violent methods, mots of the 40,000 South Moluccans living here support the gunmen's call for the Dutch government to cease all development aid and sever economic ties with Indonesia until South Molucca's rights to nationhood are restored.

"Indonesia is an artificial country created by colonial powers, like in Africa," said Noes Solisa, a student teacher and leader in the local Patimura youth group, named after the original Moluccan guerrilla squad that battled Dutch colonialists in the late 18th century.

"We are a strange mixtures, with a military heritage, East Asian mentality and a life in exile," said Jaco, another student teacher here who says his family names is blacklisted by the Indonesian government.

Devout Christians, the South Moluccans have blended pantheism with the tenets of Dutch Protestantism.

In their isolated enclaves dispersed around the Netherlands, the South Moluccans adhere to ancient family traditions marked by strong paterns authority and a fondess for children. Both customs have been flouted in the desperate crusade to regain possession of their ancestral island.

The young gunmen in both current and previous sieges have rebuffed their elders' pleas to surrender. They also refused to release the child hostages despite parental pressure, and finally relented only when an infectious disease menaced the classroom.

"We are in a revolutionary process to get our country back, so all methods are allowed," said Solisa, whose brother was jailed for his role in seizing the Indonesian consulate in Amsterdam 18 months ago.