BAKU, 13 May 2004 — Ten years to the day after Armenia and Azerbaijan agreed to stop fighting each other over the mountainous enclave of Nagorno-Karabakh, there is still no lasting deal to resolve the dispute and, insiders say, only a slim hope that there will be one in the foreseeable future.

Though the guns are now silent, the failure to find a proper settlement has left a ticking time bomb at the heart of a Caucasus region which is taking on strategic importance for the West as a transit route for oil supplies.

“The region is balancing on the edge of a conflict,” said Tofiq Zulfugarov, a former foreign minister in Azerbaijan. “I would not exclude the possibility of a resumption of hostilities.”

When, on May 12, 1994, the defense ministers of Azerbaijan and Armenia exchanged notes agreeing to a cease-fire, it halted five years of war which had cost some 35,000 lives and, according to independent estimates, forced a million people on both sides to flee from their homes.

At the moment the ceasefire was agreed, Armenian forces were in de facto control of Nagorno-Karabakh — an enclave that Azerbaijan insists is part of its sovereign territory — and seven Azeri regions adjacent to Karabakh.

What followed was supposed to be a brief interlude of a few months while the two sides, helped by international mediators, thrashed out a permanent peace deal which would make a return to war impossible.

But those few months turned into 10 years and, despite regular peace talks, summits and mediation by the European Union, Russia and the United States, no deal has materialized.

According to former Armenian Foreign Minister Vahan Papazian, who took part in the negotiations, a lasting solution is now even further away than it was 10 years ago.

“Today there is no progress whatsoever,” he said. “The former leaders of Armenia were much closer to a resolution than the current ones.” The “frozen conflict” suits no one. Azerbaijan complains that part of its territory has been annexed, while Armenia, wedged between Azerbaijan and Turkey, is under a crippling economic blockade by the two countries in retaliation for the war.

So what chance is there now, after 10 years, of a peace deal for Nagorno-Karabakh?

Insiders say the prospects of an agreement which will settle the conflict once and for all are practically nil, at least for a generation.

Azerbaijan will settle for nothing less than having Karabakh under its sovereignty. Armenia will not countenance this.

“The current population cannot decide the status of Nagorno-Karabakh because the positions of the Azeri and Armenian populations are diametrically opposed,” said Zulfugarov. But an interim agreement, which leaves the thorny issue of Karabakh’s status to one side but takes some of the sting out of the conflict, could be attainable.

One option along these lines would see the severed railway link between Armenia and Azerbaijan reopened in exchange for Armenian forces pulling out of some of the seven districts bordering Karabakh.

This proposal has been discussed before by the two sides but rejected. There could, though, be a change in the air.

According to some analysts, the United States is taking an active interest in finding a settlement.

It is backing a multi-billion-dollar pipeline across the region to export oil from the Caspian Sea to world markets and does not want to see oil supplies disrupted by a new war.

At the same time, Russia, the other key player in the region, is showing signs that it is swapping its tradition of rivalry with the United States for influence in the Caucasus for a policy of cooperation.

With Moscow and Washington acting in tandem, Azerbaijan and Armenia might be persuaded to swallow a partial peace deal, analysts believe. “The fact that the international community recognizes that the time for a resolution has come is not in doubt,” said Papazian. “(But) the sides themselves need to show political will, which, as far as I can see, neither the Armenian nor the Azeri leaderships have.”