The Thai government on Wednesday cancelled plans for a November election and scrapped talks with protesters occupying Bangkok's commercial district for nearly six weeks, but softened its line on an earlier crackdown threat.
Hours after announcing they would shut off power and cut water supplies from midnight to thousands of anti-government protesters, authorities postponed the plan, saying it would hurt residents in the ritzy district more than the demonstrators.
But the government said it would take other measures to seal off the central Bangkok area packed with hotels, embassies, businesses, high-end apartments and two public hospitals.
"Tonight, we will start preventing taxis and cars delivering protesters into the area and tomorrow, we will divert some public transportation into the area as well," army spokesman Sansern Kaewkamnerd told reporters. "Details are still being worked out."
The threats follow the unravelling of a peace plan proposed last week by Prime Minister Abhisit Vejjajiva to end a political crisis that has killed 29 people, paralysed parts of Bangkok and slowed growth in Southeast Asia's second-biggest economy.
Leaders of the mostly rural and urban poor protesters remained defiant, refusing to leave their 3 sq km (1.2 sq mile) encampment and challenging the government from behind medieval-like walls built of tyres and sharpened bamboo staves.
"We will die here if we must. Your threat will not work," Nattawut Saikua, a protest leader, told cheering supporters after the government said it may use force to disperse them if other measures failed.
The decision to postpone cutting off water and power followed outcry by residents, thousands of whom were urged by their landlords to leave and find temporary accommodation.
Several diplomats, meeting with Thai Foreign Minister Kasit Piromya, expressed concern over how the hastily announced measures would affect their embassies, according an Asian diplomatic source present at the meeting.
Severing supplies would have presented a huge logistical challenge and may not have even worked. The protesters said they would survive with their own power generators and food sources.
Attempts to intercept their supplies also risked clashes on the fringes of the area or inside their sprawling tented camp, where women and children were among about 6,000 protesters.
"I don't see how cutting supplies could be effective," said Karn Yuenyong, director of independent think-tank Siam Intelligence Unit. "It's not an easy task and may not be worth it, especially if protesters can bypass it."
He said it could also spark violence following a series of clashes, grenade attacks and shootings since April 10, when a failed attempt to disperse protesters in another area of Bangkok led to a night of fighting that killed 25 people.
"A resolution without a clash is becoming increasingly unlikely," he added.
Thailand's finance minister said the crisis could trim 0.3 percentage point off Thailand's targeted annual growth rate this year of 4.5 to 5 percent.
Abhisit had offered an election on Nov. 14 -- a year before one is due -- to try to end rallies that began in mid-March with a demand for an immediate poll.
The red-shirted protesters, mostly supporters of former Prime Minister Thaksin Shinawatra who was ousted in a coup in 2006, accepted the election date -- an offer now withdrawn -- but are pushing other demands.
They say the British-born, Oxford-educated Abhisit lacks a popular mandate after coming to power in a parliamentary vote 17 months ago and heading a coalition the military helped cobble together after the courts dissolved a pro-Thaksin party.
Some of their leaders now face terrorism charges connected to the protests and say they will only disperse if a deputy prime minister faces criminal charges over the April 10 clash, accusing the government of double standards.
At the protest site, where a ramshackle network of tents, trailers, food stalls and mobile toilets has spread across some of the capital's smartest streets, there was no sign of protesters packing up or greater security force activity.
"It just shows they are not interested in making up," said Komsan Sukpradit, a 48-year-old red shirt guard patrolling the area after getting blessed by a chanting Buddhist monk. "They will crush us given a chance and we can't let that happen."
Sirinaj Jantoh, who works at a marketing agency in the area, said she feared the government's threat may escalate tension.
"It's going to make it harder to come in to work," she said. "Maybe we will work from home for a while, especially if there is no power. I just hope the red shirts leave soon -- they have caused enough trouble already."
The protests are the latest instalment in a political crisis that has festered since Thaksin's populist premiership, exposing deep divisions between the rural and urban poor and the Bangkok middle classes and traditional royalist elite.
Foreign investors have turned negative since violence flared in April and have sold 17.4 billion baht ($539 million) in Thai shares in the past five sessions, cutting their net buying so far this year to 21 billion baht as of Tuesday.