Army Retreats With E. Timor Loot : Asia: Indonesian troops set fires as they depart, peace force says. Jakarta revokes martial law in territory.

Indonesian army units are burning their compounds as they withdraw from East Timor with tons of goods looted during the territory’s month of living dangerously, peacekeepers said Thursday.

The withdrawing units--composed mostly of locally recruited East Timorese--in recent days have intimidated refugees and burned houses in this territorial capital, including the home of Dili’s mayor, said officers with the multinational peacekeeping force. Men in Indonesian army uniforms are blamed in the slaying Tuesday of Dutch journalist Sander Thoenes.

Gunfire Thursday rattled nerves in the city, though no one was hurt. Peacekeepers were unable to find the gunmen, who were believed to be Indonesian soldiers testing the reactions of international troops.

The continued unruliness among some Indonesian soldiers worries Australian Maj. Gen. Peter Cosgrove, commander of the U.N.-sanctioned peacekeeping force. He told reporters Thursday that he planned to meet with the Indonesian commander in East Timor, Maj. Gen. Kiki Syahnakri, to “thrash out” key issues because Indonesian “cooperation is fundamental” to restoring order in the violence-racked territory.

But Syahnakri faces a problem: While some Indonesian outfits here are well-trained and professional, others--particularly the locally recruited units known as “organics”--are undisciplined and answer to local commanders outside the national chain of command.

Syahnakri is in the process of withdrawing five battalions of organics--troops whose “discipline has been sorely tested by the emerging political situation,” Cosgrove said Thursday. He was referring to the troops’ opposition to the U.N.-supervised referendum on Aug. 30, when East Timorese overwhelmingly voted for independence from Indonesia.

The withdrawal of the battalions is expected to be completed in the next few days. Other troops tainted by poor conduct also are being rotated out of East Timor, replaced by more disciplined units with no historical links to the territory.

Acknowledging that he was not satisfied with the level of cooperation from the Indonesian military, Cosgrove said deployment of incoming peacekeepers will be accelerated. His 3,000-member force is expected to grow in coming weeks to 7,500 soldiers representing about 20 nations.

The Australian-led force now on the ground here is clearly spread thin. The peacekeepers have no permanent presence and no checkpoints in most of Dili, except at the port, airport and the United Nations compound. Many areas remain unsafe, and tension is high in the streets.

Australian and British troops--sometimes accompanied by Indonesian soldiers--are patrolling in trucks and armored personnel carriers and on foot. Their presence is great comfort to thousands of refugees huddled on the seashore near the port. But as soon as the peacekeepers move on, the refugees again feel spooked and insecure.

Although the peacekeepers extended their patrols Thursday into Dili’s outlying southern area, relief workers said security outside the city center was not yet adequate to launch a major humanitarian effort.

In related events Thursday:

* In Jakarta, the Indonesian capital, Justice Minister H. Muladi announced that martial law had been revoked in East Timor and that Indonesian forces were preparing to hand over responsibility for security in the territory to the multinational force.

* Peacekeeping forces said they had found eight bodies stuffed down a well behind a home in Dili. Local residents who led journalists to the well said pro-Indonesian militiamen had hung victims on meat hooks and slit their throats before dumping them in the well.

Jean-Michel Monod, Asian director of the International Committee of the Red Cross, said his organization had taken over responsibility for Dili Hospital, one of the few buildings unscathed in the rampage by anti-independence militias after the Aug. 30 vote, but could not yet move into the countryside because of security concerns.

*

Times wire services contributed to this report.