U.S. officials have had nothing but public praise for Indonesia's surprisingly swift democratic transition, including the appointment of its first civilian defense minister in a generation. President Clinton even telephoned the new president, Abdurrahman Wahid, last week to invite him to Washington.

But U.S. military ties and arms sales remain suspended following the eruption of violence throughout East Timor by disgruntled troops and army-backed militias after the territory's vote for independence from Indonesia on Aug 30. And U.S. officials have made it clear to Indonesian leaders that the normal military ties will not be resumed until the government takes concrete steps to rein in the militias still operating in western Timor and brings to book those responsible for arson and killing in East Timor.

The continued suspension of aid is likely to test ties between Washington and the new Indonesian government, which has signaled a desire to resume the warm relations of the past but is also dealing with an assertive nationalism at home. Many Indonesians still bristle at the intense pressure from their longtime Western allies that forced the previous government into a humiliating acceptance of an Australian-led international peacekeeping force in East Timor.

Indonesia's allies in the United States say they fear that the Clinton administration, by maintaining the suspension of military ties, may be missing a key opportunity to show support for Wahid and his efforts to bring Indonesia's long-dominant military under tighter civilian control.

"By doing this, the United States is going to be taken out of the game completely. It's the old argument between sanctions and engagement," said Arian Ardie, a business consultant.

What the continued aid suspension demonstrates, in the view of many analysts, is that despite the Clinton administration's insistence on the importance of Indonesia as the world's fourth-most populous country, it is tiny East Timor--dirt poor and with just over 800,000 people--that drives Washington's Indonesia policy.

Some call it a problem of perception and proportion. The violence in East Timor received extensive media coverage in the United States and other Western countries. Indonesia's meandering, sometimes confusing transition from authoritarian rule to democracy made just a ripple, and usually only when there were images of riot policemen clubbing students, or cars burning in the streets.

In addition, American supporters of independence for East Timor--human rights officials, activist-journalists, Timorese refugees--are highly effective at getting out their message. Even Indonesia's friends in the United States concede that the country's international lobbying campaign is almost nonexistent, and Indonesia's image has suffered as a result.

When Clinton announced the military cutoff on Sept. 9, he said the goal was to stop the Indonesian military's "unacceptable" assault on East Timor, and to pressure the government of then-President B.J. Habibie to allow foreign peacekeepers to restore security there.

Habibie and his armed forces commander, Gen. Wiranto, relented a few days later. Now almost all the Indonesian soldiers have been withdrawn from East Timor, and the new Indonesian People's Assembly has voted unanimously to allow the tiny territory to go free; a formal handover to a U.N. transitional administration is pending.

With these moves, Indonesian officials say they have removed the East Timor issue as an impediment to normal ties with the United States.

"There are no more obstacles between Indonesia and the West," said Dewi Fortuna Anwar, a political scientist who served as Habibie's chief foreign policy adviser. "We're doing all the right things."

But Washington has added new conditions that Defense Secretary William S. Cohen and other U.S. officials have spelled out to Indonesian military leaders.

Among other things, U.S. officials want assurances that the Indonesian military has severed its ties with the militias operating in western Timor and is moving to disarm them. They want the East Timorese refugees being held in western Timor to be allowed to return home. They want the Indonesian government to cooperate with human rights investigations into the East Timor chaos. And they want top Indonesian military officers linked to the East Timor abuses to be brought to justice.

Western diplomats say they have seen some evidence that Indonesian troops are beginning to disarm the militias, and displaced East Timorese have started to return home.

Moreover, Wiranto has been effectively sidelined, appointed by Wahid as coordinating minister for political affairs and security--a job with no real power or command over troops.

But so far, diplomats said, the actions taken are not nearly sufficient, and resuming the suspended aid is not even on the U.S. agenda.

Many analysts say they fear Indonesia will chafe at a "moving of the goal posts" by the Clinton administration. They warn that by pressuring Indonesia's leadership too hard, the United States risks alienating the very reform-minded government it should be embracing--and perhaps pushing Wahid into strategic alliances with China or other countries less amenable to U.S. interests.

"If this perception grows . . . it's going to fray the relationship," said Adam Schwarz, an Indonesia expert and adjunct professor at Johns Hopkins University.

Some here believe the desire to send a message to Washington was behind Wahid's surprise announcement that he wanted to make his first official trip abroad as president to China, a country with which Indonesia formally mended ties only a few years ago. China is known to have been in touch with Indonesian military leaders about selling arms here following the aid suspension by the United States and other Western countries.

Others say Wahid is pursuing a shrewd balancing act--not shifting policy, because he is inherently a friend of the United States, but merely redressing what many here see as a tilt too far toward the West under the now discredited Suharto government during the Cold War.