| DAMAZIN, Sudan
DAMAZIN, Sudan When Sudanese tribal leader Youssef al-Mak Hassan al-Dan proposed a ceasefire to end fighting with southern-allied fighters he was immediately interrupted by community leaders in the border town of Damazin.
Fighting erupted last week in Blue Nile state in Sudan between the Sudanese army and fighters allied to Sudan People's Liberation Movement (SPLM), the dominant force in newly independent South Sudan.
Sudan's President Omar Hassan al-Bashir acted quickly in Blue Nile by sacking the elected SPLM governor Malik Agar in the provincial capital Damazin and appointing a military ruler.
While Khartoum accepted the independence vote of southerners agreed under a 2005 peace deal, analysts say it wants to crush rebels in the joint border area before they become a strong military and political force.
Dissent is also brewing in other areas, which could pose problems for Bashir if the violence spreads.
Although government forces managed to restore order in Damazin where fighting has ended, there are still many political divisions in Blue Nile, the third Sudanese border area to witness such violence between the army and southern-allied fighters.
At a government news conference to show journalists flown in from Khartoum that life was getting back to normal in Damazin, cracks appeared in the facade when tribal leader Youssef proposed a 15-day ceasefire and dialogue with Agar.
"No negotiations, no negotiations" several local officials and supporters of the ruling party shouted. "No talks with traitor Agar," others chanted.
Some demanded tougher military action against the SPLM while organizers of the news conference quickly turned on music to drown out the dispute.
The episode highlights the challenges Khartoum is facing in volatile border northern states such as Blue Nile where many SPLM supporters and former rebels fighting for the south during decades of civil war live.
Chris Philips at the Economist Intelligence Unit said it was clear that Khartoum decided to be tough in the border areas as warning to other areas where dissent is simmering, such as east Sudan.
"The government fears instability ... If there was a serious defeat of the Sudanese army then this would be seen opportunity for other regions," he said.
But by focusing on crushing the rebels Khartoum risks further antagonism in Blue Nile, where the SPLM and its former governor Agar has many supporters, analysts say.
"Many people in Blue Nile respect Malik Agar and admire his leadership so he will have a powerbase in some parts of the state that a difficult to control," said another Sudan analyst, declining to be identified because of the sensitivities of suggesting the violence threatens the stability of the north.
Blue Nile's new military ruler Yahia Mohammed Kheir said those fighters who surrendered would be integrated into the army but many are skeptical they will take up the offer.
Violence in Blue Nile and border state South Kordofan, where violence erupted in June, is worrying for the government if it spreads. Discontent is also bubbling under in other parts of the vast African country, such as the east, which opposition activists say is underdeveloped.
In another hotspot, Abyei, a U.N. mission is monitoring a ceasefire after Khartoum took the disputed region bordering South Kordofan by force in May following an attack of the southern army on a military convoy.
On Sunday, a northern official demanded the northern branch of the SPLM to cease work in Sudan.
And in Darfur, in the west, a rebel group fighting another insurgency said in July it had conducted a joint attack in South Kordofan, a charge denied by the army.
Analysts say Khartoum would be concerned if there was any coordination between armed groups in the border areas and whether South Sudan was supporting rebels in Blue Nile or South Kordofan.
STATE CAPITAL QUIET
In Blue Nile's provincial capital Damazin, there were trucks full of soldiers, tanks and artillery guns parked on main squares. Army patrols could be seen everywhere.
In the central market area, several groceries had started to reopen as officials say residents who fled last week are returning.
"People are coming back. They call relatives to find out that the city is safe," said Ismail Abdullah, who owns a small grocery shop.
"The situation is good now," he said, speaking in the presence of government minders.
But many retailers, restaurants, cell phone shops were still shut, with few people venturing outside.
"Security is fine now but some are still scared to come," said another resident who gave his name as Ahmed when asked why many shops are still closed.
Some 20,000 people fled Blue Nile to neighboring Ethiopia, according to the U.N. refugee agency UNHCR.
Babikir Osman, commissioner of neighboring community Bau, said authorities were trying to convince residents to return as the situation was calm.
"This is the most disastrous thing the state has witnessed ... During the civil war no displacement took place in Damazin town. Now almost everybody has left," he said.
"We try persuade them that the situation is stable now."
(Reporting by Ulf Laessing; Editing by Alison Williams)