REBELS FREE 7 HOSTAGES BUT NO END IN SIGHT FOR PERU EMBASSY STANDOFF.

Byline: Calvin Sims The New York Times

Despite recent signs that negotiations to end the hostage crisis at the Japanese ambassador's residence were stalled, Marxist guerrillas Wednesday released seven of their 81 captives, including Peruvian government officials and Japanese businessmen.

But 74 hostages remained under the guns of Tupac Amaru rebels as the siege continued into the new year with no visible sign that the government and guerrillas were close to ending the standoff, which began Dec. 17.

Word of a possible hostage release began circulating early in the afternoon after Bishop Juan Luis Cipriani of Ayacucho entered the residence to celebrate Mass for the hostages and pray with them.

Shortly after 5:30 p.m., Cipriani and Red Cross representative Michel Minnig left the residence with seven smiling hostages, who appeared clean-shaven and who carried plastic bags containing their dirty clothes.

Waving to television cameras, the freed men boarded a bus and were driven to a nearby police hospital.

But their release left many unanswered questions, since Peruvians expected a larger number of hostages to be freed after the government restored electricity to the residence Tuesday and permitted journalists to cross police barricades.

Indeed, the administration of President Alberto Fujimori and the Tupac Amaru Revolutionary Movement, which captured the residence two weeks ago, have sent mixed messages in recent days about the state of their negotiations to resolve the crisis.

Both sides have stated their willingness to avoid bloodshed, though neither the president nor Nestor Cerpa Cartolini, the guerrilla leader, has indicated any point on which they are willing to compromise. Cerpa told journalists who were allowed inside the residence Tuesday that he did not see an immediate end to the siege.

Political analysts who are closely following the crisis said that they believe the government and the rebels have made steady progress toward a resolution, if only because more than 500 hostages have been released and not a single life has been lost.

But the analysts said that the two sides still have a long way to go because they are deeply divided over the demand of the rebels that the government release their jailed comrades.

``Cerpa destroyed the mirage of a fast solution,'' said Mirko Laurer, a well-known political columnist. ``In real terms, his statements did not effect the status of the negotiations so much as to clearly define where those negotiations are.''

The government's designated chief negotiator, Education Minister Domingo Palermo, was mysteriously not present for Wednesday's hostage releases nor when two diplomats were let go on Tuesday. In the past, Palermo has met with the rebels inside the residence and shaken the hand of each hostage released.

What has become clear, however, is the major role that Cipriani is playing in freeing hostages. While Cipriani, a close friend of Fujimori, says that he goes to the residence to perform pastoral services, he is clearly acting as a mediator.

``I want to give thanks to God for this day and for the liberation of these seven men,'' the bishop said after the hostages were released. ``We are happy to see these brothers free.''

Among those hostages released Wednesday were Alberto Yamamoto Miyakawa, president of the National Institute for Development; Jose Kamiya Teruya, a representative of Japanese company Suki Yaki Systems; and Juan Asserto Duarte, director of the committee for privatization.

Rebels continue to hold the Japanese and Bolivian ambassadors, the Peruvian foreign minister, the president of the Peruvian Supreme Court, at least 10 generals and other military and anti-terrorist officers, and other government officials.