On New Year's Eve, city streets once emptied by fear swelled with revelers, despite persistent drizzle. Soldiers shed their uniforms, put aside their guns and waded into a crowd that included many people who sympathize with local separatist rebels, residents recalled, while cars, motorbikes and motorized rickshaws choked the streets surrounding the magnificent black-domed mosque in this provincial capital.

"This was the first time in many, many years for us to go out on New Year's Eve. Everyone used to be afraid," recounted one shopkeeper, Murizal Hanafiah, 29, shaking his head in delighted disbelief. "It was a big shock to us. It was amazing."

Then, at midnight, something else unexpected happened: There was no sound of gunfire. Unlike in the past, when rebels and government soldiers marked the turning of the year by emptying their rifles into the sky, the night was filled only with the sound of honking car horns and the tooting of countless noisemakers.

A month after President Megawati Sukarnoputri's government signed a peace deal with rebels battling for their own homeland in Aceh (pronounced AH-chay), Indonesia's westernmost province has experienced a dramatic reduction in violence and a newfound hope that one of the longest-running insurgencies in Asia may be coming to an end.

Previous initiatives to settle this 26-year-old conflict have failed. And this new effort, which for the first time involves international monitors to police the cease-fire, has not been able to completely stanch the bloodletting. Since the Dec. 9 "cessation of hostilities," 22 people have been killed in clashes, including 13 civilians, according to the Geneva-based Henry Dunant Center, which mediated the agreement. But that compares with an average of 87 civilian deaths per month during the nine months leading up to the accord and a total of 4,000 deaths of civilians and combatants in the past two years, the center reported.

Both government forces and the Free Aceh Movement, known by its Indonesian language initials, GAM, have ordered their fighters to halt offensive actions, said David Gorman, the Henry Dunant Center's chief representative in Aceh. "There's such a difference after the signing," he said. "I'm not saying the sides love each other but they did it in a very functional way, immediately."

The peace process faces a crucial test in early February, when rebel fighters are required to begin turning over their weapons to cantonment areas subject to international inspection and Indonesian forces must begin a partial pullback. Even more challenging will be upcoming discussions over the political future of Aceh, which the Jakarta government insists must remain a part of Indonesia despite the rebels' continuing demand for independence.

The road connecting Banda Aceh with Lhokseumawe, an industrial city about 170 miles to the east, provides ample reminders about the hazard of sliding back into war. Winding through lush banana groves and glistening green rice paddies, the two-lane road passes the brick and stone ruins of a police headquarters bombed by rebels and the gutted remains of a row of shops that local villagers say was burned down by police last year in retaliation for the killing of one of their officers. Soldiers remain ensconced behind sandbags at the gates to their posts, and abandoned wood-plank homes have yet to be reclaimed by villagers who fled the fighting.

But there are also notable signs of change. Many of the military checkpoints have been removed from the road, and private cars, once almost unknown on the road, are now a common sight. "In the past, you'd think a thousand times before you'd travel from the villages to the city," said human rights activist Saifuddin Bantasyam. "You could be killed at any minute."

Villagers long came to the metal girder bridge at Seunapat looking for bodies that they said were regularly dumped in the ravine below. Now, the bridge is frequented only by monkeys. Indonesian and international human rights organizations have accused both sides of committing numerous atrocities, but have blamed the bulk of the violations on the Indonesian forces.

Since the December accord, farmers such as Masmi, 38, have returned to their fields. Wearing a straw hat with a tattered brim, barefoot and carrying a machete, Masmi paused beside his rice paddy and admitted he was still afraid. Then, he yanked his ratty shirt over his head and displayed about a dozen scars on his back. He said Indonesian police had grabbed him after a suspected rebel bombing two years ago and beat him hard with their fists and rifle butts, looking for information about rebels.

"I'm still traumatized. I feel nervous whenever I see soldiers pass by," he said. "Now, I feel less terrified than before."

In the markets of Banda Aceh, peace is already paying economic dividends. Eggs, vegetables and other commodities were once often in short supply because trucks could not reach the capital from the villages or Medan, the main port in Sumatra, according to traders. Now, merchants hawk huge heaps of onions, lettuce and two-foot-high mountains of red chili peppers.

The change is most noticeable at night. Shops that were once shuttered not long after sunset now remain open. And deep into the night, peddlers in Banda Aceh and Lhokseumawe do a brisk business in durian fruit, the spiky-skinned, foul-smelling but delectable specialty of Southeast Asia.

In Lhokseumawe, Yanti, 25, remembered when the threat of sudden clashes made it impossible to play in the city's main public park, a sandy stretch along one of the main boulevards. She was 11 then.

On a recent Saturday evening, she accompanied her 5-year-old nephew Alforkan to that same park, as she does most days now, and marveled at the packs of children gathered around the brightly colored swings and slides, in front of the peddlers selling soda, ice cream and bags of popcorn. "We never thought we'd see it crowded like this," she said.

Despite this widespread relief, the animosity between the government forces and rebels has shown only a few signs of abating.

Sofyan Dawood, a rebel general in northern Aceh, accused the Indonesian military and police of exploiting the cease-fire to establish more than 30 new posts since Dec. 9. "Hopefully, in the next one to two months, we can see people become more satisfied with the real implementation of the agreement," Dawood said in an interview in a safe house on the edge of the jungle.

In the past, reporters and other guests often had to venture at least five miles along dirt roads deep into the jungle to visit Dawood. Now, he is willing to speak within a mile of the main North Aceh road. Though Dawood has not lost his sour demeanor and still keeps a handgun tucked into the waist of his jeans, he was relaxed as he spoke on the veranda of a once-gracious home that was gutted by fire.

"From the GAM side, we are committed not to attack them anymore," he said, adding that rebel commanders had called a meeting in the jungle with several thousand fighters earlier this month to underline this message.

But Maj. Gen. M. Djali Yusuf, the Indonesian military commander in Aceh, and other officers in the security forces, allege continuing violations by the rebels, including shootings, kidnappings, extortion and the convening of political meetings to press their campaign for independence.

"I've asked my soldiers not to be provoked so that the people whose lives have changed 180 degrees won't be disturbed," Yusuf said in an interview. He paused, and continued: "If they want to solve this softly, we'll do it softly. If they challenge us to do it hard, we'll do it hard."

With the guns largely stilled, the most vexing problem for many Acenese is the continuing practice of extortion. The number of complaints received by the Henry Dunant Center is up sharply and Maj. Gen. Tanongsuk Tuvinun, the Thai officer who heads the international monitoring team, said both sides are guilty.

Senior Indonesian military and police officials say the rebels have taken advantage of the cease-fire to step up extortion of local shop owners, teachers and villagers. The guerrillas regularly demand the equivalent of 50 cents a month from each household and a 10 percent kickback on contracts to build schools and roads, according to a researcher familiar with their practices.

Meanwhile, the military and police continue to shake down trucks for what the officers call "coffee money." According to a World Bank report released last month, trucks traveling the 375-mile road between Medan and Banda Aceh had to pass through 60 official checkpoints and many more unofficial ones, paying $5-$200 at each, depending on the cargo's value.

While many checkpoints are gone, the extortion continues. On a recent morning, trucks were stopped at an average of more than one a minute at a police checkpoint set up beside a busy road junction outside Lhokseumawe. Like clockwork, the drivers or their assistants hopped down from the cabs and passed cash to the police officers sitting in the shade of a mango tree.

The spike in complaints about extortion may be one of the best indications that life is returning to normal. It is not that the practice is on the rise, according to human rights activists, but that people are more willing to blow the whistle.

"With shootings and ambushes declining, the people now report this instead," said Tanongsuk, the Thai general. "And the peace process has given people more comfort that it is safe to come out and make these reports."

An Indonesian soldier with a gardening hoe passes assault rifles in front of a mosque in Aceh province.