Masked attackers armed with rifles, knives and grenades stormed a Christian neighborhood and killed 12 people in Ambon, the capital of Indonesia's Molucca Province. The attack threatens a fragile peace agreement between the Muslim and Christian communities.

The attackers were armed with homemade bombs and daggers, stabbing their victims before setting fire to 30 houses and a Protestant church in Soya village on the outskirts of Ambon City. Tensions have been rising between Christian and Muslim communities in Ambon, after a Christian separatist group, the South Moluccas Republic, raised banned independence flags. The group was marking the 52nd anniversary of its founding during Dutch colonial rule. Authorities, including National Police chief General Da'I Bactiar, reported at least eight dead and refused to speculate on the identity of the killers. But local Christian leader, Pastor Cornelius Bohm, told news agencies he suspected the attackers were from a militant Islamic group, Laskar Jihad.

The Laskar Jihad, led by Jafar Umar Thalib, has rejected a February peace deal aimed at ending three years of violence that has left about 5,000 people dead in sectarian violence.

The February agreement was being portrayed by supporters of President Megawati Sukarnoputri as evidence of the government achieving stability among the strife torn regions of Indonesia. The attack has increased tensions in Ambon and sparked fear of a new round of violence in the province.

The Moluccan archipelago lies more than 2,300 kilometers east of Jakarta. While 85 percent of Indonesia's 210 million people are Muslim, about half the population in the Moluccan Islands is Protestant.