"I was in a bar with friends and heard the news on television," says student activist Paulo Sandoval. "People immediately jumped up and started hugging each other and cheering. But after 10 years of enduring Fujimori, I felt strange. It was something that no one thought would happen."

Monday, the initial euphoria had subsided, and a mood of tension and near-panic was descending on Peru as its citizens began to ponder what will happen next.

Fujimori's decision, which also includes deactivating the country's powerful National Intelligence Service, is clearly linked to Thursday's broadcast of a videotape on the cable channel Canal N, which showed the president's close advisor, Vladimir Montesinos, paying a former member of the opposition to defect and join Fujimori's party. Transcripts of the tape detail Montesinos' plot to acquire opposition politicians after Fujimori lost control of the Congress in last April's elections, and allude to the real influence the de facto head of Peru's National Intelligence Service (SIN) holds with the president. Since the vote, 13 opposition members have defected to Fujimori's Peru 2000 Party, giving it the majority in Congress -- but now many are questioning whether those defections were the result of bribes.

There have been no further statements from Fujimori since the announcement -- a silence that has fueled rumors and fear. Members of both Peru's ruling coalition and its opposition are calling for the arrest and trial of Montesinos for corruption. Contradictory reports have circulated about Montesinos whereabouts. Several news agencies report that Montesinos is being held in the SIN headquarters under orders from Peru's military commander, Gen. Jose Villanueva Ruestra, but they remain unconfirmed. But Peru's justice minister has stated publicly that Montesinos is not being detained.

"One begins to feel a bit hysterical because Fujimori hasn't told us what really happened, and no one knows where Montesinos is now or what is happening. It's a total mystery," says Sandoval. "I'm totally certain that Fujimori has something planned," says the activist, who has received threatening letters for his participation in anti-Fujimori rallies. "I can't believe that after fighting so hard for a third term, he'll give up power this easily."

But respected Peruvian political analyst Fernando Tuesta says he's certain Fujimori will step down. "I think that Fujimori never really wanted to run for a third term because he knew there was a danger that all these things would come out. Certainly, he loves power; I'm not saying he wanted to give that up, but I think he was afraid that some of these things would come to light and the video scandal gave him a graceful way to bow out."

Since Fujimori first announced his intentions to run for an unconstitutional third term back in 1996, rumors have circulated that Montesinos was behind his decision. Peru's new constitution, rewritten by Fujimori in 1992, limits presidents to two terms. But Fujimori's allies in Congress came up with a tricky solution: He was originally elected under the old constitution, which didn't bind the president to such pesky limitations, so he shouldn't be obligated to observe the terms of the new one. When Peru's consitutional court ruled against Fujimori, he came up with an easy workaround -- he fired the judges. When Fujimori was first elected as the surprise candidate in 1990, the former university rector had no legitimate party or power base. Observers say Montesinos came forward with a circle of powerful military officers and agreed to back Fujimori in exchange for control of the powerful SIN, Peru's answer to the CIA.

The opposition has been quick to unite against Fujimori's government since the airing of the video -- with opposition members effectively paralyzing the government by shutting down Congress until Montesinos is arrested. Most opposition politicians have never accepted the results of the presidential elections last spring, which were marred by allegations of fraud.

Alejandro Toledo, Fujimori's main challenger, refused to stand in a runoff ballot this May following reports from monitoring missions that conditions did not exist for a free or fair vote in Peru. Even the usually complacent Organization of American States withdrew its observers from the election and afterwards mounted a high-level mission to push for a series of democratic reforms in Peru, including the removal of Montesinos from his post. In the aftermath of the elections, U.S. and Canadian delegates to the OAS pushed for harsher measures against Fujimori, but they were held back by other Latin American states such as Venezuela.

Recent U.S. pressure on Fujimori comes after years of waffling over human rights abuses under his regime. Critics have charged the United States with brushing aside Fujimori's human rights record and authoritarian tendencies because of his favorable position on economic liberalization and his perceived role as an ally in the U.S. war on drugs. Indeed, unlike leaders in Colombia, which has been divided by civil war, Fujimori, aided by Montesinos, has been successful in combating cocaine traffickers and militant guerrillas in Peru.

Coletta Youngers, a senior associate at the Washington Office on Latin America, says that before Peru's contested elections, the country was seen "as one of the countries posing less problems for the United States. There was a tendency to minimize the situation in Peru and focus attentions on Colombia."

But fears of instability during the elections led to a policy turnaround at the U.S. State Department. "There came a moment of panic in Washington over what could happen, more in the post-electoral period, especially if Fujimori won and his rule was not considered legitimate, leading to instability," said Youngers.

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