KATMANDU, Nepal -- From the roof of Nakhu prison here, Matrika Yadav watched with a sense of elation, he said, as protesters streamed down a nearby road, chanting slogans against King Gyanendra. The Maoist ideologue was convinced that the end of the country's monarchy, nearly 2 1/2 centuries old, was near.

Now, he said, he's not so sure.

Early last week, Gyanendra capitulated to the protesters, agreeing to reinstate parliament in a decision that turned the streets of the capital into a huge victory party on Tuesday. His retreat opened the door for the writing of a new constitution that could eliminate the monarchy.

That is the goal of Maoist rebels whose 10-year insurgency has claimed at least 12,000 lives. But for Mr. Yadav and other leaders of the rebellion, Gyanendra's eleventh-hour concession to an alliance of mainstream parties, which had orchestrated weeks of protests in loose cooperation with the rebels, was cause for suspicion, not celebration.

"The parties were caught in his trap, against the will of the people," said Mr. Yadav, 48, a politburo member who is the highest-ranking Maoist in government custody in Nepal. "If they would have waited for a few more days, the downfall of the monarchy was inevitable."

The writers of the new constitution could agree to retain the monarchy in some form.

Mr. Yadav's conflicted reaction to the massive display of people power, which brought the Himalayan kingdom to the brink of anarchy, illustrates the dilemma of a rebel movement that wants to retain a voice in above-ground politics but not at the price of abandoning its weapons or dreams of communist utopia.

Some analysts here say they believe that the tumult of recent weeks could open the way for an end to the insurgency, by creating a new political framework in which the Maoists can work peacefully. On Wednesday, the rebels declared a three-month unilateral cease-fire, to start Thursday, saying they wanted to facilitate a constituent assembly that will draft the constitution.

In a 90-minute interview at the prison Wednesday afternoon, Mr. Yadav, a slight, boyish-looking man in rimless eyeglasses and blue windbreaker, denounced the mainstream parties as "status quo-ist and feudal" and said some Nepalis could be forced to undergo "reculturization" in labor camps following the triumph of the revolution.

At the same time, he insisted that the Maoists were still willing to work with the mainstream parties -- "synergy is a must" -- and would cooperate, up to a point, in holding elections for a constituent assembly.

"We strongly honor the opinion of the people, and what we are saying is the opinion of the people," he said.

The party's struggle to reconcile its hard-line ideology with popular will was evident in its muddled response to Gyanendra's announcement late Monday that he would meet the seven-party alliance's demand to reinstate parliament, dissolved nearly four years ago.

On Tuesday, the Maoists' leader, who goes by the name Prachanda, denounced the king's proclamation as "a sham and a conspiracy against the Nepali people" and called for the protest movement to continue. By Wednesday, the rebel leader had softened his line and agreed to suspend a blockade against the capital, at least until the parliament's first meeting on Friday.

Although Maoist leaders have at times professed respect for democratic principles, their actions and ideology have not been consistent with that path. After Nepal became a constitutional monarchy in 1990, the Maoist party took part in mainstream politics until 1996, when its leadership proclaimed the experiment with democracy a failure and took the movement underground.

Maoist leaders now espouse "the Prachanda path," which blends the teachings of Chinese revolutionary leader Mao Zedong with homegrown remedies tailored to the specific social conditions of Nepal, such as caste discrimination.

The party's armed wing, equipped with homemade bombs and rifles looted from police, is thought to consist of about 7,000 full-time fighters, with as many as 25,000 militia supporters. They have the run of Nepal's mountainous countryside and at times have staged mass attacks on army outposts and other government installations.

Mr. Yadav's time behind bars has apparently done nothing to cool his revolutionary ardor. "Marxism has failed nowhere," he said. "It has only been defeated for some time."