By Sushil Sharma BBC correspondent in Kathmandu

The rebels recently held their first mass rally in Kathmandu

Fluctuating peace hopes in Nepal have soared again as Maoist rebels and the government hold formal talks in Kathmandu.

The two sides appear to have overcome procedural differences which delayed negotiations last week and cast doubt on the three-month-old peace process.

Formal talks began on Sunday - the start of what many believe will be an arduous journey to peace.

Uncertainties have overshadowed peace moves ever since they got under way in January when the two sides announced a ceasefire.

It took almost two months to agree on a code of conduct and another month to agree on a date for starting talks.

'Insincere'

The two sides failed to meet on the agreed date last week following a last-minute hitch.

Mutual mistrust has gradually given way to growing confidence, but long-running suspicions on either side persist

The government wanted to limit the first round of talks to an introductory session. The rebels insisted on progressing straight to questions on the political agenda.

Both sides then accused the other of being insincere.

There have been reports of skirmishes, arrests and abductions.

The two sides have both accused each other of violating the ceasefire.

In the latest skirmish, on Thursday, a Maoist rebel died in the eastern hill district of Okhaldhunga - the first casualty since the truce began.

Parties' role

A fresh date for talks was set after the government relented and agreed to discuss matters at the centre of the conflict.

Thousands have died in the conflict

Mutual mistrust has gradually given way to growing confidence, but long-running suspicions on either side persist.

The rebels want a round table conference, an interim government and a constituent assembly to draw up a new constitution which they believe will clear the way for a republic.

The government has agreed to discuss the rebels' agenda, but it is determined to defend the kingdom's constitutional monarchy.

Caught in the middle are the mainstream parliamentary parties who have been gearing up for joint protests.

They are at loggerheads with the king over his assumption of executive powers last year.

They have also been critical of the Maoist rebels who, the parties suspect, want to derail multi-party parliamentary democracy.

Crucial talks

The parties feel that they are being sidelined in the peace process.

The rebels accuse the government of dragging its heels

As they prepare to assert themselves, it is not clear what involvement they will have in the peace process, which is aimed at ending seven years of violence that has cost 7,000 lives and ravaged the subsistence economy of one of the world's poorest countries.

The government and the rebels have accused the opposition parties of trying to sabotage the talks for partisan reasons.

The parties are discredited after 12 years of poor performance, but they continue to have broad support across the country.

Their role will be crucial for the success of the peace talks.

The last thing people want to see is a repetition of the past.

Some 5,000 people have died since the last peace talks broke down in November, 2001.