It has been a singularly South Pacific coup, where the gunmen sport shorts and floral shirts with their balaclavas and Fiji's tribal chiefs hold the key to resolving the crisis that has engulfed this idyllic island nation.

When George Speight, an enigmatic shaven-headed businessman, stormed parliament with seven armed accomplices last week, kidnapping the prime minister and most of the government, he appeared an absurd and isolated figure with no institutional support and little prospect of accomplishing his aims.

Yet only eight days later, Speight and his ever-growing band of heavily-armed supporters have all but won over Fiji's powerful Great Council of Chiefs and seem certain to topple the democratically elected government headed by the nation's first ethnic Indian prime minister. Mahendra Chaudhry still languishes under lock and key inside the parliament buildings in Suva, along with more than 30 other hostages.

Despite an astonishing capitulation by the chiefs, who have buckled under many of Speight's outrageous demands, he still holds the cards and is standing firm to get exactly what he wants. The chiefs say Mr Chaudhry's government, elected comfortably last May, should be replaced by an interim administration headed by the president, Ratu (the title means chief) Sir Kamisese Mara, and including members of Speight's group.

But even bringing down the Indian-dominated government is not enough for these coup plotters. They want Ratu Mara's resignation and say they will hold out until they get his chiefly head on a plate.

Proposed amendments to the 1997 constitution - including assurances that only indigenous Fijians can hold the position of president or prime minister - also fall short of the rebels' insistence that the constitution is abolished altogether.

A recommendation by the chiefs that the coup leader and his accomplices be pardoned has also proved unacceptable. The hostage-takers say they are not prepared to spend any time in prison and will release their captives only if they are assured immunity from prosecution. All this has resulted in an international backlash and a tense standoff between Ratu Mara, who has assumed executive power under a state of emergency, and Speight's group.

While the president has the backing of the police and army, there is a groundswell of grass-roots support for Speight, with indigenous Fijians seizing hungrily on the chance to demonstrate their grievances and resentment against the commercially dominant ethnic Indian community.

Many Fijians resent the economic power that Indians have acquired since their ancestors were brought to Fiji to work as labourers on sugar plantations when the country was a British colony. Indians now run the plantations on land leased from indigenous Fijians, and Fijian grievances include demands for more control over that land. Mr Chaudhry, heavily criticised for his abrasive leadership style and insensitivity to Fijian subtleties and traditions, was also perceived to be promoting pro-Indian policies and removing indigenous Fijians from civil service posts and statutory bodies.

The situation signals a potentially disastrous regression in Fiji's attempts to achieve equality between its two main ethnic groups, indigenous Fijians who make up 51 per cent of the 800,000 population and ethnic Indians, who account for 44 per cent.

The proposals of the Great Council of Chiefs, which commands considerable moral authority among indigenous Fijians and is influential in the political process, have caused an international outcry and may see Fiji expelled from the Commonwealth.

It was reinstated only two years ago, after an 11-year exclusion that followed two coups in 1987 led by Sitiveni Rabuka, who now chairs the Great Council of Chiefs and briefly acted as a mediator between Speight and the president.

If the nation cannot act within legal and constitutional parameters to resolve its crisis, there are certain to be economic and sporting sanctions, already threatened or hinted at by Australia, New Zealand, America and Britain. The hard-earned reputation of Fiji's army as a distinguished international peacekeeping force is also likely to be tarnished.

The grounds of the parliamentary complex where the hostages are holed up exudes an anomalous sense of festivity and celebration, as more than 1,000 supporters - cheerfully described by Speight as his "human shields" - roast pigs in earth ovens and pulverise roots to prepare the traditional narcotic drink, kava, by the bucketful.

Cross-legged on the ground, they sing songs of hope and victory, bursting into spontaneous cheers and applause every time they catch sight of their leader, who walks around barefoot, wearing the traditional Fijian "sulu" skirt.

Journalists are waved through the iron gates by courteous men with military assault rifles, faces masked by balaclavas or bandannas but always happy to help with directions or details for the next day's story.

Any plans to mount a military assault on the compound would be complicated and perilous given that several of Speight's gunmen are members of Fiji's Counter Revolutionary Warfare Unit - an elite special forces squad led by a colonel who spent more than 20 years with the British SAS.

Mr Chaudhry has been beaten and threatened with execution during his week in captivity. On one occasion, Speight became alarmed that security forces were planning to storm the compound and ordered that the prime minister be marched on to the parliamentary lawn with a gun to his head. "If anybody makes a threat to breach these boundaries, we will not hesitate to do what we need to do," Speight said later.

While few doubt that Speight is capable of carrying out such threats if pushed too far, it is believed by many that the issue of ethnic tension is a smokescreen for the real reason behind the coup.

A theory has emerged that the true plotters are a powerful business consortium, angry at tax reforms that punished high earners and businesses. Others claim Speight is the puppet of corrupt opposition parliamentarians, starved of lucrative backhanders under the new government.

There could be little better choice for a frontman for such an audacious act. Speight is a failed businessman, due to be declared bankrupt and to appear in court on extortion charges. He had a particular axe to grind against Mr Chaudhry after his recent sacking as chairman of the government logging company, Fiji Hardwood Corporation.

Speight (44), American-educated and an Australian citizen, was a prominent player for an American company, Trans Resource Management, which lost a bid to harvest Fiji's multimillion dollar mahogany resources.

The forests have recently reached maturity and are considered the world's largest mahogany plantation, with an estimated value of $68 million. It was thought Speight was on course to become extremely wealthy from the deal. The offices of the Fiji Hardwood Corporation are still smouldering after it went up in flames in the dead of night on Thursday. There is little doubt among the business community that the arson was planned by Speight to destroy incriminating documents.

The coup crisis threatens to damage the tourist industry which props up Fiji's economy, and also raises the prospect of an exodus of ethnic Indians, many of whom now believe that their only future lies in repatriation, perhaps in Britain or Australia.

The way forward for Fiji is unclear and a solution to its current predicament seems a very long way away. The Commonwealth Secretary-General, Don McKinnon, who visited Suva earlier this week to seek the release of the hostages, has convened a meeting of the Commonwealth ministerial action group in London early next month to decide what, if anything, can be done.

"Aiming a loaded gun at the constitution to marginalise sectors of Fiji's society is totally unacceptable," he said yesterday. "This is a major step backwards for Fiji as we start a new millennium."