By Gopal Sharma

KATHMANDU, Nov 22 (Reuters) Nepalis woke up today to the promise of peace and an end to a decade of civil war, kidnappings, murders and fear, seven months after mass street protests overturned royal rule.

Residents lit candles, danced and cheered in the streets of towns and cities after the impoverished country's government and Maoist rebels signed a peace accord late yesterday and declared an end to a conflict that has killed 13,000 people.

The pace of change has left many Nepalis optimistic of better times, but wary of the challenges that lie ahead if promises and deals are to be turned into lasting peace on the ground.

''What until recently was an improbable peace has become a reality,'' the Kathmandu Post said in an editorial.

''The signing on a piece of paper will have no meaning in itself if the stakeholders concerned fail to abide by the accord in its true spirit.'' The deal, signed by Prime Minister Girija Prasad Koirala and rebel chief Pushpa Kamal Dahal, who goes by his nom de guerre Prachanda, clears the way for the Maoist soldiers to lock up their arms and be confined to camps.

Maoist leaders will take seats alongside the elected politicians in parliament and join an interim government to oversee elections for an assembly that will draft a new constitution and decide the fate of the monarchy.

A country which at times led the world in terms of the number of people ''disappeared'' by the army or the rebels is now dreaming of a life free of both fear and fighting.

''I hope no mother will lose her children to conflict and no children will become orphans any more due to violence,'' said 54-year-old Punam Shrestha, selling vegetables on a pavement in in the capital, Kathmandu.

The government declared a public holiday today and asked residents to illuminate their homes and officials to light up public buildings in celebration.

''We are on the threshold of peace and a new history,'' said Yubaraj Ghimire, editor of the widely read news magazine, Samay, adding that the signatories now needed to keep their promises.

''Especially the Maoists need to show that their cadres are fully disciplined and obey the leadership,'' he said.

A similar warning came from the United States, which still considers the Maoists a terrorist organisation. It demanded an end to violence, extortion and the forced recruitment of rebels.

(PEOPLE'S MANDATE) The peace process got under way shortly after King Gyanendra surrendered power to political parties in April after weeks of often bloody street protests.

Since then the Maoists and the government have observed a ceasefire, although this has not stopped the rebels recruiting thousands of new fighters or demanding money from businessmen and ordinary people across the country.

''The critical test of this agreement will be its implementation on the ground,'' influential neighbour India said. ''Violations must be dealt with under the laws of the land ... The people's mandate, and their trust, must not be betrayed.'' There are still risks and hurdles ahead. The Maoists will retain the only key to the containers where their arms will be stored under U N supervision, and could resume their armed struggle if they lost confidence in the peace process.

The rebels are also demanding the full integration of their fighters into the national army, something the army is very reluctant to countenance on a large scale, diplomats say.

Bishna Raj Upreti, who teaches conflict management at Kathmandu University, said rebel fighters and victims of the conflict needed to be rehabilitated and reintegrated into society. ''This is only a beginning,'' he said.

The conflict, which began in 1996, has hit tourism in Nepal, home to eight of the world's 14 highest mountains, including Mount Everest, and badly damaged an already weak economy. But no tourists were killed.

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