A year after the breakdown of peace talks between Maoist rebels and Nepal's government, violence between the two sides has reached new heights, raising fears of humanitarian disaster, regional instability and -- at least in Washington -- the emergence of a new breeding ground for international terrorism.

Once welcomed by many Nepalis, the rebels have grown increasingly brutal in their "people's war," which they say is aimed at toppling the troubled constitutional monarchy of King Gyanendra. According to human rights monitors and victims, they have murdered teachers and other perceived enemies -- sometimes by beheading -- and severely beaten many more people, in some cases smashing the legs of suspected informers with the blunt side of an ax.

Government security forces have fought back with harsh measures of their own, targeting not only the Maoists but in many instances unarmed civilians accused of supporting them, according to a report released last month by Amnesty International.

The trend in the conflict can be read in statistics: Of the estimated 7,000 people killed since the Maoists launched their rebellion in 1996, more than 5,100 have died in the last 12 months, about 4,000 at the hands of the army or police, according to unofficial tallies by foreign embassies.

The human toll can also be discerned in villages such as this one, a half-mile-long cluster of mud-and-stone houses nestled in a fold of terraced farm fields about 60 miles northwest of the capital, Katmandu. Notwithstanding the presence of 800 army troops in and around the provincial capital of Gorkha, barely 10 miles away by rutted dirt road, the Maoists pay regular visits to demand food and extort "taxes" from teachers and other government employees, people here say.

At the same time, villagers are under pressure from the soldiers, who frequently pass through the area on patrols and warn them against helping the rebels, said Thakur Lamichan, a retired headmaster.

"Two weeks back, the Maoists came to my house," said Lamichan, 52, an erect, dignified man in a wool scarf and traditional peaked cap. "They were asking for money, but since I wasn't there my wife just gave them food and then they left." He added, "Definitely it is not out of willingness, but if we don't feed them, they will threaten us."

Though the rebels are active in 72 of Nepal's 75 administrative districts, according to diplomats, they do not yet threaten the survival of the government, which controls the major towns and cities. The Maoists' leaders -- leftist politicians who took their movement underground after concluding that Nepal's democratic experiment, begun in 1990, had failed -- remain sensitive to their image abroad and recently reiterated their desire for talks aimed at convening an assembly to write a new constitution for Nepal.

"There is every possibility of dialogue," said Padma Ratna Tuladhar, a leftist politician and human rights activist who served as a mediator during the last round of negotiations. "We are quite confident we can bring them together again."

But as the violence has escalated, foreign intelligence analysts have begun to speculate about the possibility of a breakdown in command and control within the movement, as power devolves to armed fighters who see the rebellion as an opportunity for score-settling or personal enrichment.

Although the Maoists have no known state patron to provide arms and supplies, they have captured more than 1,000 weapons -- including antiquated Enfield rifles, light machine guns and Belgian-made automatic rifles -- from security forces and finance their activities through bank robbery and extortion, government officials say. They maintain ties to several like-minded groups in India and are able to move freely back and forth across the largely unpatrolled border.

Known chiefly in the West as an exotic destination for well-heeled trekkers and mountaineers, Nepal is of limited strategic value to the United States or other foreign powers beyond the region. Nevertheless, Bush administration officials are concerned that if the Maoists come within striking distance of power, India could feel compelled to intervene on the side of the government -- possibly triggering a response from China, which has a history of tense relations with India.

A more immediate worry -- reflected in the visit here last January by Secretary of State Colin L. Powell and last month by Christina Rocca, the assistant secretary of state for South Asia -- is that Nepal could be headed toward the roster of failed states hospitable to terrorism.

"We don't want to see a vacuum or chaos in Nepal that mischief-makers could come and sit in," one envoy said. "This is a country where a little money goes a long way."

To forestall those possibilities, Washington has pledged $38 million in development aid and $17 million in military training and equipment, including light weaponry and night-vision gear. The administration's plan to help the army has prompted criticism from some human rights activists, who say it will encourage further abuses by security forces and undermine chances for a negotiated settlement.

U.S. officials say the military assistance will include human rights training and that Nepal, for all its failings, is still a multiparty democracy with a legitimate right to self-defense. They also question the Maoists' commitment to a negotiated settlement, suggesting that the rebels may simply be buying time to acquire more arms and ammunition.

"The Maoists have to be bent toward negotiations, and that's where security assistance comes in," said U.S. Ambassador Michael E. Malinowski, who has likened the rebels' tactics to those of Cambodia's Khmer Rouge. "My argument is to get this fixed now, before it gets any worse. Otherwise there will be a much bigger bill to pay."

The Maoists scored a major propaganda victory in June 2001 when Gyanendra's predecessor and brother, King Birendra, was murdered in a palace massacre carried out by Birendra's son, who then committed suicide. Following the massacre, the rebels entered into negotiations with the government. But when the talks failed to make headway, the Maoists launched an aggressive new phase of the war, seizing weapons and killing hundreds of security personnel in mass assaults on remote police outposts and army barracks.

Since then, the all-important tourist industry has collapsed, and the country's political crisis has deepened following the dissolution of parliament last spring by then-Prime Minister Sher Bahadur Deuba, who was dismissed by Gyanendra in October after postponing new elections. Gyanendra has since appointed an interim government, a move denounced by Maoists and major political parties alike as unconstitutional.

But the Maoists, too, appear to have lost support as a consequence of their attacks on civilians perceived as symbols of the government, such as teachers and postmasters, as well as suspected government informers. "I used to think they were doing something good for the country," said Shyam Sundar, 35, as he lay in a Katmandu hospital with steel rods pinning his two shattered legs. In November, Maoists used an ax to splinter the bones below his knees after accusing him -- falsely, he says -- of spying for security forces.

"Initially people thought the Maoists would be shock therapy for this decaying political scene," said Kapil Shresta of Nepal's Human Rights Commission. "However, their indulgence of this wanton and brazen violence, and extortion, has really made people very disappointed in the Maoists."

The Royal Nepal Army is scarcely more popular. Called out of its barracks just 13 months ago, with its experience limited to ceremonial duties and peacekeeping missions abroad, the army has frequently failed to distinguish between friend and foe.

Samari Budha, 27, is one of countless Nepalis who have been caught in the middle of the conflict. In early October, she said, an army patrol entered her village in the Rukum district in pursuit of rebels who had arrived there in search of food. In the ensuing gun battle, a bullet hit her in the face, shattering her jaw and leaving her blind in one eye.

By her account, the army made no effort to evacuate dead or wounded civilians. In great pain and accompanied by her elderly mother and two small children, she was carried to the nearest paved road on the back of a porter. The trip took seven days; another week passed before she reached the capital and finally received medical care.

"I don't know anything about these things," Budha said from her hospital bed in Katmandu, where she is awaiting plastic surgery to close the festering wound to her jaw. "I don't even know who Maoists are."

Lt. Col. Shiva Ram Kharel, the battalion commander in Gorkha, said he is sympathetic to villagers who find themselves caught in the conflict and that he has ordered his troops not to punish people for giving food to the Maoists.

"The security situation, I cannot say it is completely under our control," he said, puffing on a cigarette outside the stone bungalow that serves as his headquarters. "If we kill one, they will multiply by 10."

Maoist rebels broke the legs of Shyam Sundar, 35, after accusing him of spying for security forces. He is recuperating at a hospital in Katmandu.