As the world was fixated on the Beijing Olympics and Russia’s incursion into Georgia, a fledgling peace process between the Philippine government and Muslim rebels fighting for autonomy in the country’s restive south was beginning to unravel. The Philippine Supreme Court’s suspension of a key peace agreement fanned the flames of violence in the region, sending insurgent factions storming into villages. One hundred fifty thousand people fled their looted and torched homes, while the Philippine military pounded rebel hideouts with heavy artillery fire. The United Nations expressed alarm, while the International Red Cross said more than 80,000 people were displaced.

The United States should be concerned at the recent developments in the 30-year bloody struggle between the Moro Islamic Liberation Front (MILF) rebel group and the Philippine government. After all, it was Washington that granted independence to a unified, majority-Christian Philippine state in 1946 despite calls by Moro Muslims for a separate status. These grievances later crystallized into a full-blown insurgency. The Philippines is a major non-NATO ally that also initially committed troops to Washington’s unpopular war in Iraq. Manila has also served as a key player in the global war on terrorism in Southeast Asia, a region home to a quarter of the world’s Muslims. After the MILF stronghold in the southern Philippines was designated a “terrorist safe haven”, the U.S. assisted the Philippine military in wiping out al-Qaeda-linked groups Jemaah Islamiyah and Abu Sayyaf with groundbreaking success.

But yet the MILF’s nationalist struggle continues to be a bone in Manila’s throat. Despite a ceasefire inked in 2003, a final peace agreement spelling out the specific terms of autonomy has thus far proven elusive. The current version, known locally as the Memorandum of Agreement on Ancestral Domain (MOA-AD), hands over autonomous control to the MILF, ceding it the right to control natural resources and to establish an independent police force. While it is a milestone in the peace process, its provisions have been met with fierce protests and angry petitions, leading the Supreme Court to issue a temporary abrogation. Opponents argue that the deal is unconstitutional as only the government has the right to control national resources. They also view the independent police force provision with suspicion given the MILF’s shady links with other al-Qaeda-linked terrorist groups in the Philippines. Some observers have expressed skepticism that the MILF will be able to muster the unity to preserve long-term peace given the organization’s chronic factionalism, while others see autonomy as a direct challenge to the very concept of the Philippine state.

The MOA-AD has also fallen victim to Philippine politics and deep divisions among and within the three branches of government. Philippine President Gloria Macapagal-Arroyo lacks the political capital to push the agreement through as she is still reeling from two coup attempts and several corruption allegations. Her opponents are dead set against handing her any domestic policy success. The Philippine legislature has a reputation for watering down agreements into irrelevance, while the Supreme Court that temporarily froze the agreement this month could just as easily declare it unconstitutional. President Arroyo’s own cabinet is so fraught with hawk-dove divisions that her respected chief negotiator Silvester Affable resigned last year in fury. And the president’s opponents have made it clear they will not tolerate attempts to push the MOA-AD through via a constitutional change as part of a veiled effort to extend her presidential term beyond the 2010 limit.

The United States has not been spared in this frenzied debate. When rumors circulated that U.S. Ambassador Kristie Kenney was scheduled to be present at a since aborted formal signing ceremony of the MOA-AD in Malaysia, local commentators questioned why a foreign diplomat should interfere in a strictly internal issue. Similarly, eyebrows were raised over reports that the ambassador met with the MILF earlier in the year. Speculations also abound on the future trajectory of Washington’s commitment to the peace process. Some lament that the MILF is only of peripheral interest to a terrorism-focused Washington, while others have ignited old suspicions that the U.S. is interested in eventually establishing military bases in MILF-held territory as a substitute for its Cold War-era Philippine bases in Clark and Subic, which are no longer operational.

While critics are right to question the pace, constitutionality, extent and effectiveness of a final peace agreement, they must also recognize that time is not on the government’s side. Foot-dragging only increases the clout of MILF hardliners and weakens the hand of those committed to a peace process despite its frustrating vicissitudes. It also allows a dangerous nexus of organized crime, insurgency and terrorism to fester in the southern region, providing a fertile breeding ground for international terror networks. After all, it was only a decade ago that al-Qaeda set up a base in the southern Philippines, where it attempted to orchestrate an elaborate plot to assassinate Pope John Paul II and bomb a dozen American planes.

Furthermore, the best way to test the MILF’s sincerity, unity and capacity, all of which are major concerns of critics of the peace deal, is to give the MILF its first opportunity to govern as a willing partner. The ball would then be in the MILF’s court, allowing the Philippine government to test the group before determining its future posture. The approach is at least worth a try. Contrary to popular belief, the MILF remains a homegrown nationalist group with limited ties to international terror networks, and its steadfast commitment to a peace accord despite a near two-year deadlock suggests it is more committed to the peace process than critics give it credit for.

That being said, the road to reconciliation will probably be a very rocky one. A final peace deal will continue to be caught up in intense political infighting unless the Arroyo administration can muster the political will to overcome a host of significant obstacles. As it navigates through heated debates, the administration would do well to clarify its policies in order to squelch speculation and educate the public about this controversial issue — like specifying exactly which constitutional amendments it may seek.

Even if the deal eventually passes, its implementation will definitely present several formidable challenges. The MILF will face rivalries from traditional Moro chieftains, politicians and other more radicalized factions, while the government must prepare for potential sectarian violence and agitation by local Christian leaders. But the most daunting challenge will be for the MILF to transform from a group of rebels into bureaucrats. Nation-building is a far cry from armed struggle, and the Philippine government must facilitate this transition by providing the necessary administrative advice and assistance.

The next U.S. administration, for its part, should continue to play a constructive role in the Southern Philippines. That means encouraging the Philippine government to go forward with the peace deal as well as playing a largely behind-the-scenes role in facilitating negotiations. All this should be done with adroit diplomacy that is ever mindful of stoking the sensitivities of Philippine nationalism. Washington must also continue its robust counterterrorism assistance in the region, which involves a holistic approach of economic development and military training that will play a vital role in bringing sustainable peace to an underdeveloped region marred by violence. In this way, the Philippines can continue to be a model for how the U.S. can help its allies battle international terror and constructively facilitate reconciliation with nationalist rebel groups.

After three decades and more than 120,000 deaths, both the Philippine government and the MILF have learned by negative example that war is an unsustainable solution. The MILF leadership last week distanced itself from a rogue commander who spearheaded the offensive after the Supreme Court decision, citing its firm commitment to peace, while Manila’s chief peace negotiator Hermogenes Esperon proclaimed “war is not an option.” But while both sides may finally know what they should not do, garnering a consensus on what they should do may prove to be another matter altogether.