Reliable Republican sources say that the Federalists at
yesterday's B.F.O. meeting agreed to the three conditions,
irrespective of Soekarno and Hatta, for talks between the
Republican leaders and the Federalists (see my telegram K256 [1]).

These are:-

(A) The release of the Republican leaders.

(B) Meeting the Republican leaders as a Government.

(C) The Republicans to participate in the talks as representatives
of the Republican Government.

The same source believes that Beel telephoned Sassen last night
and that the decision is acceptable to The Hague.

2. Such a decision by the Dutch would be in line with their
efforts to seek rapprochement with the Republicans through the
Federalists and may be foreseen as an attempt to by-pass the
Security Council's resolution [2], or at least the Commission for
Indonesia.

3. Hatta and Soekarno will be obliged to meet with the Federalists
now that their conditions have been accepted, but may insist on
the talks proceeding on the basis of the Security Council's
resolution. The Dutch may make new offers. Rumours are current
that they may make suggestions for an early transfer of
Sovereignty to a United States of Indonesia and for the re-
establishment of the Republican state on the basis of plebiscite
or elections.

4. In the continued absence of information from The Hague
regarding the resolution, I shall endeavour to have the Commission
send a strong letter to the Netherlands delegation tomorrow
morning and to follow this up with a further report to the
Security Council which will conclude with a recommendation.

5. The Dutch are taking steps to form another State in the Area of
Middle Java occupied by them prior to 19th December. Preliminary
discussions have been held for the establishment of Representative
Council at Semarang.