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An anti-government Red Shirt protester launches a slingshot loaded with a large firecracker toward Thai soldiers as clashes continued in Bangkok on Monday.Getty Images

As dawn broke Tuesday there was, in the words of one senior anti-government leader, a very definite fork in the road facing Thailand. But it isn't a neat Y-intersection with two equally obvious paths to choose from: one is "a superhighway of violence," the other a narrow and poorly lit back alley that just might lead to a peaceful solution of this country's deadly political crisis.

In interviews with The Globe and Mail, both the government of Prime Minister Abhisit Vejjajiva and the leaders of the Red Shirt protest movement said they wanted a peaceful resolution, if the other side would just be reasonable. And on the streets, the urban warfare between soldiers and protesters that has taken 37 lives since last week, and injured more than 260, continued to rage in three separate parts of the city. Smoke from burning tires and buildings hung over the skyline.

The two sides, via the media, appeared to agree on the outlines of a temporary ceasefire late Monday night that would see the Red Shirts pull protesters away from the scenes of the heaviest recent clashes and back to the main protest area in the centre of Bangkok. But there was little progress toward resolving the issues that instigated the two-month-old crisis and on Tuesday the Thai media is reporting that the ceasefire talks have collapsed.

After declaring Monday and Tuesday to be "holidays" in Bangkok in what was seen as an attempt to keep the streets clear for an operation to clear the main Red camp, the government has now told businesses, schools and public buildings to remain shut until the weekend.

Some Red Shirts did quietly leave their fortified camp in the centre of Bangkok ahead of a government deadline Monday, but as night fell there were still an estimated 5,000 people defiantly sleeping on the streets, women and children among them, claiming they were willing to die in the name of "democracy." The 32,000 soldiers amassed in a ring around them made no immediate move to oust them, seemingly content to contain the main group while fighting running battles with pockets of Red Shirts in three other parts of the city.

Just before the deadline passed, a plane flew over the protest site, warning people to disperse "for their safety and the safety of their families." The government announced that those who remained in the Red Shirt camp after the deadline would receive two-year prison sentences.

Those who remained said they were unconcerned. "I don't believe the government will take any action," said Vilaiporn Ketboontot, a 40-year-old housewife who slept Monday night in front of a closed Louis Vuitton shop on a mattress made from corn chip wrappers. "But I am willing to die for democracy."

Red Shirt protests were also reported in several areas in the north and northeast of the country - the political support base of fugitive former prime minister Thaksin Shinawatra - raising fears that the chaos that has consumed the Thai capital could spread.

Seemingly rattled by the violence, Red Shirt leaders called for new talks with the government, dropping an earlier demand that any negotiations be mediated by the United Nations. But they also returned to an old bargaining position that Mr. Abhisit should immediately dissolve parliament and call snap elections.

The government, furious at the rejection of a previous peace plan that offered early elections in November, has publicly stuck to its hard line of recent days that the protesters must be dispersed before any reconciliation process can begin. "We call on [the Red Shirts]to pressure those armed elements to stop attacking," spokesman Panitan Wattanayagorn said in an interview at the government's crisis headquarters inside the north Bangkok base of the 11th Infantry Division.

Monday night, a senior member of the Red Shirt leadership called one of Mr. Abhisit's aides and offered to pull those fighting with the army off the streets and back into the main protest camp, a move that would appear to satisfy the government's main demand while at the same time bolstering the defences of the main protest site. The government did not immediately respond to the offer.

"If we stop the Red Shirt people at Din Daeng, at Bon Kai, at the Victory Monument, the government will stop its pincer attack," said Jaran Ditapichai, a Red Shirt leader involved in previous back-channel negotiations, referring to three areas of Bangkok that have seen heavy fighting in recent days. "But the government doesn't think we can bring our people back in here."

Sitting on white plastic lawn furniture in the centre of the five-kilometre-wide protest camp, Mr. Jaran said he nonetheless held out hope that the fighting could be brought to an end, primarily because he believed the government didn't want to launch an all-out assault on an area that contains many of the city's poshest shopping malls and luxury hotels. Some radical Red Shirts have threatened to loot and burn the buildings if the army attacks.

"There is a peaceful side road and a superhighway of violence," was how Mr. Jaran described the choice now facing Thailand.

At least six more people were killed in violence around the city Monday, in lopsided running battles that continued to feature Red Shirt protesters armed with slingshots and fireworks battling soldiers with assault rifles. The army held a press conference at the end of the day to show video evidence of some Red Shirts using firearms against soldiers, but they appeared to be isolated incidents.

One soldier and 36 protesters have been killed since Thursday, when fighting erupted shortly after a sniper shot General Khattiya Sawasdipol, a dissident military figure who defected to the Red Shirts and was believed to be responsible for organizing their defences. Gen. Khattiya died Monday after four days in a coma.

At least 65 people have now died since the Red Shirts took to the streets on March 12. The protesters are predominantly the rural poor and many of them are supporters of the populist Mr. Thaksin, who was ousted in a 2006 military coup.

Both Mr. Abhisit and his opponents have warned that Thailand, deeply divided along lines of class and geography, is dangerously close to civil war.

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