IN THE days after ETA Basque separatists bombed Madrid airport last weekend, breaking a nine-month ceasefire, Spaniards watched aghast as the worst terrorist tragedy since the Madrid bombings of March 2004 unfolded in agonising slow motion, shattering a nascent peace process and throwing the nation into despair.

Each day that passed between Spain's usually joyous winter holidays - New Year and yesterday's Epiphany, when Spanish children traditionally receive their presents - hammered another nail into hopes for an end to the long-standing Basque conflict.

The bombing itself was bad enough, injuring 26, leaving two men crushed beneath tons of rubble and throwing Madrid airport into chaos on a peak day for holiday air traffic. Three warnings, one in the name of ETA, were telephoned to the authorities in the hour before Saturday's attack, giving time for police to clear the five-storey car park - except for Ecuadorean immigrants Carlos Alonso Palate and Diego Armando Estacio, snoozing in their parked cars - but not to prevent the explosion of an 800kg bomb strapped to a Renault truck, the biggest device ETA has planted in 15 years.

Most international flights have now transferred to Madrid's spectacular Terminal 4 building, inaugurated with great fanfare last February by its creator, the British architect Richard Rogers. Repairing the devastated car park will cost up to 40 million (£27m), but the political and international damage inflicted by a terrorist attack on such a high-profile target is incalculable.

Spain's socialist prime minister, Jose Luis Rodriguez Zapatero, interrupted his family holiday in the south of the country to return to Madrid. "I have ordered the suspension of all initiatives to develop dialogue. This attack is the most mistaken and useless step that the terrorists have taken; absolutely incompatible with the ceasefire," he told the nation on the night of the blast.

But in a rare mis-step from the man who seemed not to have put a foot wrong in his attempt to bring ETA in from the cold, he did not visit the chaos of mangled steel and concrete rubble until Thursday, five days later. The tardiness of this gesture led critics to accuse Zapatero of remaining aloof during his government's deepest crisis. Spain, said Popular Party opposition leader Mariano Rajoy late last week, "is a ship drifting without a rudder".

New Year's Eve celebrations were overshadowed by protesters who poured on to the streets to demand Zapatero's resignation, or to repudiate ETA terrorism and defend the peace effort. The very divisions among the demonstrators compounded the pressures that piled upon Zapatero in his darkest moment, as the main plank in his government collapsed beneath him.

Days passed while heavy earth-moving equipment excavated the five storeys of wreckage in search of the missing men. The pro-ETA Batasuna party insisted the peace process was not over, but more necessary than ever, and that ETA's attack had caught them on the hop. Finally the first, then the second, crushed victim was found, confirming that ETA had conducted its first fatal attack in three-and-a-half years. In a rare gesture, Batasuna expressed its "deepest sorrow" for the deaths, but failed to condemn the bombing.

Zapatero had spoken of suspending, not breaking the process, but the interior minister, Alfredo Perez Rubalcaba, dispelled any ambiguities midweek: "The process has broken, obviously. The process is liquidated. The process is finished. ETA has broken, liquidated and finished the peace process."

Last week concluded with the sickening discovery that the huge blast was no isolated incident. On Thursday night, nearly 100kg of explosives were found in an abandoned car near the Basque town of Amorebieta, primed and ready to be detonated. And on Friday, a rucksack containing some 80 explosives was found nearby on the same wooded hillside, signalling a likely return to the campaign of violence that has plagued Spain for decades, as ETA militants seemed prepared once more to turn upon their own people.

It has been the worst week for Zapatero, who has staked his authority on the bold strategy of seeking to talk Basque separatists round, rather than try to defeat them. His gamble has, for the moment, failed, dealing his government a terrible setback.

"Zapatero staked his credibility on calling for an act of faith, and lost," a commentator wrote in Barcelona's daily newspaper La Vanguardia on Friday.

But Mariano Rajoy, who had bitterly criticised the government for making contact with ETA, and accused Zapatero of selling out to terrorists, was also left with ashes in his mouth when the attack seemed to demonstrate the falsity of such an allegation. The banned pro-ETA party Batasuna, meanwhile, can kiss goodbye to its dearest hope: of being legalised in time for regional elections in May. "They've all lost. We all lose. What a shame," the La Vanguardia piece concluded.

The Basque country has withdrawn once more into the silence of fear, a regional omerta, refined over more than a generation, that divides villages and families. The attack ends nine months during which people began to feel that peace in some form had already arrived: they had started to speak more freely, to leave home without bodyguards, to hope for the future.

WHAT went wrong? How could Zapatero, who has striven for an eventual negotiated solution to the Basque conflict as his top priority, have found his policy so suddenly in tatters?

Saturday's bombing was a brutal shock, but not a bolt from the blue. Since ETA declared its ceasefire last March, a process longer than last week's drawn-out nightmare has slowly tumbled towards disaster. Storm clouds have gathered for months over the road to peace, and by November sympathetic observers close to the process warned it might soon be over. "The process has more than stagnated. I'd say it has derailed," said the Bilbao lawyer Txema Montero, former Batasuna leader and veteran of previous ceasefires, in early December.

The peace process - in which the socialist government hoped to initiate talks with ETA once they were convinced of the separatists' willingness to abandon violence for good - was hobbled from the start by opposition from the conservative Popular Party (PP). When Zapatero proposed in May 2005 to prepare the ground for talks with ETA, PP leader Rajoy accused him of "betraying the dead" and bitterly condemned contact with ETA as a treacherous sell-out to a bunch of criminal gangsters.

When parliament later gave its blessing to the prospect of talks, on the strict condition that ETA give up violence, the PP noisily dissented. Spaniards are deeply divided, but it has to be said that millions agree with Rajoy.

Zapatero is therefore dangerously isolated over the country's most serious political problem, on which, despite his best efforts, he never achieved cross-party consensus. Since the ceasefire, the PP has supported massive demonstrations mobilised, by groups representing ETA's victims, against any concessions to terrorist prisoners. The far right issued incendiary warnings, reminiscent of the Franco years, that settlement with the Basques could herald the break-up of Spain.

Zapatero refused to budge, even on the radical nationalists' most pressing immediate demands: that Basque prisoners dispersed to far-distant corners of Spain be brought nearer home. He could have taken this humanitarian step without changing any law, but wanted firmer proof of the commitment to abandon arms.

Similarly, he refused to consider legalising the pro-ETA Batasuna party, which can muster up to 17% of the Basque vote, even though prominent members of the regional government were openly talking to Batasuna leaders about possible participation in a round table of parties to discuss a framework for eventual talks with ETA.

The background noise of pro-ETA street vandalism in the Basque country continued all summer and grew louder through the autumn. In October, ETA was blamed for stealing 300 pistols from an armoury in France, prompting the government's critics to complain that ETA's commitment to non-violence was a sham and that separatist militants were cynically using the ceasefire as an opportunity to rearm.

By November, Batasuna's leader and a key interlocutor with the government, Arnaldo Otegi warned of "constant crisis and blockage" that could produce "an unpredictable outcome". Even so, Otegi said he remained "prudently optimistic". Reports began to circulate before Christmas that ETA was planning a return to armed action that would be limited to "sabotage", rather than mortal attacks. Probably the airport attack was not intended to kill, which is why ETA did not - as it has done to end previous ceasefires - announce beforehand that the truce was over.

DESPITE mounting speculation of resumed attacks, Zapatero insisted as late as Friday, December 29, that he too remained optimistic that the ceasefire would hold and would lead to a definitive peace process. Just over a week later, observers are now shaking their heads over the gulf between expectations and reality. Were the separatists deliberately leading the government into a black hole? Were Zapatero's sappers talking to the wrong people in an illegal organisation riven by discord?

Long before Zapatero's government came to power in March 2004, disaffected ETA gunmen, veteran former hitmen, their political allies, sympathetic priests, Basque socialists and socialist leaders in Madrid built a clandestine chain of contacts to explore a possible peace process. When the socialists were elected to power, four days after Europe's worst terrorist attack produced carnage in Madrid on a scale that seemed to render terrorism inoperable as a viable political strategy, those painstakingly forged links offered the best chance in years for a negotiated end to Basque violence.

The ETA camp signalled its desire to lay down arms. The government opened the door and said that it would listen.

Jose Blanco, the socialists' organisation secretary, confessed in a radio interview on Friday that they had neither given nor received enough information about the incipient peace process. "Undoubtedly the information that the government had did not correspond with the desire of the terrorist band ETA and we must therefore recognise that there was a problem of information and dialogue. We must analyse what happened to avoid repeating the same mistakes in the future," he said.

Discretion had been seen as essential to establish confidence and ease crucial early contacts. But that secrecy seems to have alienated, even antagonised, public opinion. And it now looks as though the various links in the chain of communication were not frank with each other. Participants embarked upon an uncharted road that has led nowhere. Zapatero will tell the Cortes, the Spanish parliament, in the coming days what his next step will be. It is difficult to imagine that progress towards peace will resume any time soon.

Timetable of Terror

1973 PM Luis Carrero Blanco assassinated.

1978 Political wing Herri Batasuna formed.

1980 118 people killed in bloodiest year.

1998 Indefinite ceasefire.

1999 End of ceasefire.

2001 EU declares ETA a terrorist organisation.

2003 Batasuna banned by Supreme Court.

March, 2006 ETA declares permanent ceasefire.

December, 2006 Car park bomb at Madrid's Barajas airport.

January, 2007 Spanish government declares ceasefire "broken".