Heavily armed soldiers and police occupied a town in the southern state of Chiapas Wednesday as Mexico's new president strove to show he can deal firmly with a resurgent Indian uprising.

Soldiers and state police rolled into the town of Simojovel late Tuesday night, said Joel Padron, the community's parish priest.The town's mayor had asked for army protection after rebels had occupied the town Monday, ransacking the town hall and burning government archives. The rebels have retreated and are now believed to be hiding in the nearby mountains.

The town is 22 miles north of San Cristobal, which the rebels also occupied on Monday.

There were no reports of fighting as armored vehicles and troop transports traveled the main highway to Simojovel. The 18-vehicle convoy carried about 200 flak-jacketed and armed police, who cleared rebel roadblocks of logs and stones.

Police ripped down several wooden signs reading,"This Property has Been Seized by the Zapatista National Liberation Army" along with red-and-black flags set up by the guerrillas.

Still, fears about new violence ran high Wednesday after President Ernesto Zedillo's three-week-old government countered a show of force by guerrillas with one of its own.

The rebels, who demand better living conditions for poor Indians, announced Monday that many had slipped through an army cordon manned by thousands of troops and taken up positions in 38 Chiapas towns. Uniformed guerrillas began popping up at roadblocks throughout the state.

In hopes of reassuring nervous investors that Mexico was not going to be torn by an uprising, Zedillo on Tuesday let the peso to drop 14 percent against the dollar. He vowed to seek a peaceful resolution of the conflict but promised harsher steps against those who committed "illegal acts."

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The presence of rebels outside their territory plunged Mexico into a state of nervousness.

"We are very worried because the weapons of both groups are very close to each other and to the people of this community," Padron, the priest in Simojovel, said Tuesday night. "This is a truly dangerous situation. We must seek a dialogue."

San Cristobal Bishop Samuel Ruiz, who mediated previous peace talks, said Zedillo's description of the rebels' seizure of a town and highways as "criminal acts" minimized the seriousness of the situation.

Others criticized the rebels.

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