Today Grozny, tomorrow Russia?

The humiliating peace in Chechnya may set off an explosion in the army, writes Phil Reeves in Moscow

Grozny is a city -if you can use that word for a mass of ruins - whose inhabitants are utterly immune to surprise. Somehow they have managed to survive on a battlefield, while Russia sought again and again to stamp its authority over their small mountain republic.

But even the most war-numbed resident will have been astonished by yesterday's events. Russian soldiers were preparing to fall in alongside Chechen fighters. If all goes to plan, these sworn enemies will soon be quietly patrolling the city's burnt-out boulevards side by side - the same rubble-strewn streets that they have fought over, off and on, since the war began.

Even a few days ago, this would have been unthinkable. Grozny has long grown used to nightly firefights, car bombs, power cuts, water shortages. But last week it was in the grips of severe panic. The Russian forces had been lobbing in artillery shells, but the missiles that really shook everyone were made of paper.

Leaflets dropped from helicopters fluttered earthwards with the announcement that the acting commander of the federal forces was giving them 48 hours to get out of town or face an onslaught. Tens of thousands of inhabitants who were too poor or too weak to leave when the rebels arrived just over a fortnight ago left their basement shelters and struggled out of town. Some were so scared that they were still in their night clothes.

The wreckage of this once elegant Soviet city, with street after street of blackened, bullet-pocked apartment blocks, has long symbolised Russia's brutal determination to hang on to Chechnya, a key oil transshipment route, using tactics that were often as vengeful as those of the nastiest Caucasian blood feud. Endless horrifying images of the city's suffering have surfaced since shortly after December 1994, when Boris Yeltsin decided to send in his tanks in a bid to end Chechnya's three years of unrecognised, and somewhat lawless, independence. But this week its fortunes changed.

The Kremlin has, in effect, acknowledged that it cannot win the war. And just as the Soviet Union's fruitless war in Afghanistan led to perestroika, the disintegration of the empire and the rise of Boris Yeltsin, the war in Chechnya is prompting an overhaul of the power structures, the collapse of the military and the rise of the retired general, Alexander Lebed.

First, the general. The stand-off in Grozny was a crucial test of the powers of the bluff ex-paratrooper, whom Mr Yeltsin anointed as his heir two months ago in a whirlwind political romance that has since cooled considerably. Had Mr Lebed failed to stop General Konstantin Pulikvsky's insubordinate plans to flatten the city, his role both as Security Council secretary and as presidential envoy to Chechnya would have been stripped of meaning.

Not only did he stop the onslaught, however, he also patched together a remarkably quick ceasefire with the rebel leadership, whom he is due to meet again today. Russian troops began withdrawing from Grozny yesterday. For now, at least, Mr Lebed has won the battle to prove to his enemies in the Kremlin and the military (particularly the Interior Minister, Anatoly Kulikov) that he is in charge of policy in the republic.

He also finally secured the endorsement of Boris Yeltsin himself, despite the President's earlier efforts to undermine him. On Friday the old man of the Kremlin, who started the war and then solemnly promised his electorate that he would end this "mistake", grudgingly declared himself satisfied.

The negotiations with the Chechens are certain to be extremely difficult and, like all previous talks, could easily collapse. Mr Lebed's aides claim to have details of two plots to kill him since the peace talks began. And Mr Lebed himself says there is a "third force" trying to scupper his attempts to end the war.

Matters are made more difficult by Mr Yeltsin's insistence that the republic remain an "integral" part of the Russian Federation, although the separatists are probably more flexible on the question of outright independence than is generally believed. Even so, Mr Lebed has nailed down his authority, establishing a strong position from which to launch his bid for one of the world's most powerful elected offices. To the dismay of his Kremlin rivals, he has never made any bones about his lust for the top job.

The mere fact that he has made progress in Chechnya will also accelerate his move to convert the Security Council into a far more powerful tool of government, overseeing Russia's entire security apparatus. Although the exact role of the council is still vague, a clue to Mr Lebed's ambitions has come from one of his top advisers, Vitaly Naishul, an economist. He advocates "painful and difficult measures" implemented by "a powerful structure that would stand above officialdom" a body that is, in other words, about as democratic as the Soviet politburo.

But Mr Lebed's enemies are powerful and numerous. Senior officers in the Russian military are angry over the failure to subdue what they perceived as a rag-tag rebel army which they expected to crush in a few days. They are frustrated over their thwarted desire to revenge the damage inflicted by the Chechens, including the death of some 3,000 federal servicemen, and despairing over their own inept and confused chain of command. A number will resent the loss of the spoils of war, be they millions of dollars of stolen Kremlin funds or profits from selling their own weapons to the other side.

Even more liberal Russians feel ambivalent about settling with the Chechens. Mr Lebed had barely emerged from a meeting in a rebel-held village with the separatists' chief-of-staff, Aslan Maskhadov, before relief at the outbreak of peace was beginning to mingle with remorse. The idea of striking a deal without winning back Grozny clearly rankled in Moscow. "They Have Won" said a front page headline in Moskovski Komsomolets newspaper, remarking that "similar national disgraces are usually followed by revolutions"; while Nezavisimaya Gazeta noted that for many top military officers the deal "smacks of capitulation".

There is a deeper resentment at work. The upper echelons of the career officers and top brass in the Defence Ministry are acutely aware that the war has become the catalyst for sweeping reforms. The military was in a terrible mess before the war, but the Chechen conflict has blown wide open its corruption, chaos, low morale, under-funding and ineptitude.

Alarm bells over the growing crisis in the Russian military sound almost daily. Some believe that it is on the verge of outright revolt. "It is our common duty to stop [the war], otherwise a disaster may engulf the whole of Russia," Mr Lebed told the Interfax news agency, "A revolutionary situation is already in place here [in Chechnya] and a revolutionary army is already being formed." General Lev Rokhlin, a former Soviet commander and now the chairman of parliament's defence committee, recently called a press conference entitled "The Explosive Situation in the Army". Suicides in the armed forces had rocketed to some 130 this year, he said, including a 28 per cent rise among officers.

Such was the resentment over months of unpaid wages that wives of members of an air defence regiment in the city of Kursk had blocked a runway in protest. Desperate women in the Far East had been trying to stop their spouses setting off on patrol in the Russian Pacific Fleet's submarines. Hungry and unpaid, servicemen were working as security guards, ambulance workers and labourers while, more ominously, strike committees were being set up. "Everybody should know that this is very dangerous since these are armed people, and the most unforeseeable grave developments might take place," warned Gen Rokhlin.

Those who suspect him of hyperbole need only listen to the words of Russia's usually mild-mannered Defence Minister, Igor Rodionov. "We are experiencing a crisis similar to the aftermath of the Civil War [after 1917], " he said. "I am not over-dramatising the situation. I am simply stating objective fact." The armed forces do not "possess a single regiment capable of launching a combat action or moving by rail or air at two to three hours' notice". Having "ruined the country" trying to keep pace with the Americans, and buying huge supplies of unnecessary weapons, Russia now needed a "small, well-trained army capable of performing the main mission to repel and contain the first strike".

Gen Rodionov and Mr Lebed, his ally, think alike on the issue. So, it seems, does Boris Yeltsin - at least, he did when he signed a vote-getting decree in May ending conscription and calling for a fully professional army by the year 2000. For a country with 4 million in uniform, millions more who depend on the military for a living, and a huge nuclear arsenal, the changes will run very deep.

Ultimately, whatever Mr Yeltsin's real views (and the President is a little erratic these days), it is an unavoidable fact of economics. Russia cannot support its military. With Mr Lebed on the rise and the army humbled and in chaos, the key question is uncomfortably clear: what will the die- hard generals, doomed by the Chechen disaster, now do to defend their injured pride, stolen booty and wild dreams of a return of Soviet supremacy?