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Last week's detention of a young Sri Lankan lieutenant and six members of his crew by the Indian coast guard threatens India and Sri Lanka with yet another major dispute. It is not clear whether Sri Lankan naval patrol boat 448 was on a ``routine mission'' inside its own territorial waters or was inside Indian waters.

But the incident underscores the growing sensitivity between Colombo and New Delhi over Sri Lanka's continuing communal war. The key concern is whether or not India is willing to -- or should -- intervene in the situation.

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No one doubts that the future of Sri Lanka is at stake as Tamil militants, who make up one-sixth of the nation's 15 million people, continue their fight against the majority Sinhalese. What were once Tamil demands for limited autonomy now appear to be mushrooming beyond control.

The secessionist activities in the north of the island, where Tamil militants are fighting for an independent state, have for the moment been overshadowed by a harsh campaign by the Sri Lankan army against the minority Tamils. Approximately 500 people, the vast majority of them civilians, have died in Sri Lanka during the past month.

Negotiations have thus far not been successful. An all-party conference, aimed at redressing Tamil demands, broke down at the end of December. It was the 36th such session last year.

The government of President Junius Jayewardene had introduced proposals that fell far short of Tamil demands. But they were rejected by the Buddhist clergy as offering too much, too fast. This was something of an irony, in that Mr. Jayewardene's government has increasingly appeared to speak for Sri Lanka's Buddhist Sinhalese, who comprise 75 percent of the population.

In the end, the Buddhist clergy boycotted the last sessions. Things unravelled quickly after that.

``I think this is our last chance to settle the issue peacefully,'' the secretary-general of the Tamil United Liberation Front, Andrew Amirthalingam, told newsmen before the talks collapsed. ``Otherwise the government faces a protracted struggle with militant elements in which moderates like ourselves have no role to play.''

But Western diplomatic officials say that it may already be too late for moderates.

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Until 1981, the ``parliamentary Tamils'' -- those who believed in negotiation -- could be said to represent most of the island's 2.6 million Tamils. But anti-Tamil riots, large-scale atrocities by the Sinhalese army in the north, mass arrests, and crude techniques of law and order have shifted many Tamil sympathies towards the militants.

What three years ago was a relatively isolated terrorist campaign now threatens to plung the island into an outright civil war. If this happened, it would almost certainly embroil India, only 15 miles from Sri Lanka (across the Palk Straits to the north). India was the original home of Sri Lanka's Tamils, whose bonds with India's own 50 million Tamils in Tamil Nadu remain strong -- something no Indian government can afford to forget.

Indian Prime Minister Rajiv Gandhi, due to his sweeping electoral victory in Tamil Nadu, is not under the same pressure from the state's extremist Tamil nationalists that his mother had felt. Still, he and his advisers have not yet shelved preliminary legal arguments and a military contingency plan for intervention on the island that Indira Gandhi's advisers drew up before her murder.

Yet, in a contest between war and diplomacy, Rajiv Gandhi, as leader of the nonaligned movement, clearly favors diplomacy. He assured a visitor here last week that India had no intention of going into Sri Lanka militarily.

Left unstated, however, was his mother's role in aggrevating Sri Lanka's communal strife. She had permitted the Tamil Tigers, the separatist army operating in Sri Lanka's north, to train in Tamil Nadu and to use it as a staging ground for ferrying arms and ammunition across the Palk Straits.

The straits are now under patrol by both the Sri Lankan and Indian navies. India increased its naval presence last week, ostensibly to protect its fishermen from alleged Sri Lankan naval attacks. New Delhi seems disinclined, however, to stop the supply line into Sri Lanka by an Indian naval blocade.

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