The Prime Minister is still maintaining his hard-line position by refusing to allow the 400-plus illegal boat people, mostly from Afghanistan, to touch Australian soil, but has instead offered to send them to third party countries.

"I can announce that an agreement has been reached with the Government of Papua New Guinea for the trans-shipment of the people from the MV Tampa through Port Moresby and then via aircraft to both Nauru and New Zealand," Howard said in a news conference in Sydney.

According to the proposal, 150 of the asylum seekers - mainly families - will be processed in New Zealand, while the rest will go to Nauru, a tiny island-state in the middle of the western Pacific Ocean.

At one point in the weeklong crisis, the fledgling nation of East Timor, which is currently in the middle of its first democratic election as an independent state, was even floated as a possible destination for the refugees.

With a total landmass of 21 sq. km. and with a population just under 12,000, Nauru is one of the world's smallest independent republics. It is also one of the most recent countries to join the United Nations, gaining membership, along with two other Pacific nations - Kiribati and Tonga - in September 1999.

"In the case of Nauru, Australia will of course accept completely and without any qualification the total cost of funding the operation," Prime Minister Howard said.

"I don't think anybody should think that what we're proposing in relation to Nauru and all the other arrangements we're making are going to be vastly more costly than if we had simply accepted the people in here because accepting them in is quite expensive too," he added.

According to the Prime Minister, the cost of accepting and processing the asylum seekers would have been approximately A$22 million. "Cost is not the only issue," he went on to say. "The dominant consideration is to regain control of the integrity of our borders and to make it plain that this country is not a country of easy destination for people smuggling and for illegal immigration."

In addition to his "Pacific Proposal" the government has ordered the Australian Defense Force to start an enhanced surveillance patrol and response operation in international waters between the Indonesian archipelago and Australia as a means to deter thousands of other would-be immigrants headed towards Australian shores.

Reports from Christmas Island indicate that a major military supply operation is under way to transfer the asylum seekers directly from the Norwegian freighter onto an Australian naval boat. They will then be taken to the Papua New Guinean capital of Port Moresby before being flown on to either New Zealand or Nauru.

"I should emphasize that this agreement and this potential solution to this very difficult issue does not involve the people being taken onto Christmas Island or onto Australian territory or any part of the Australian mainland," Howard said.

"That has been quite fundamental to the Government's position and we have maintained that and we intend to maintain that," he added.

But, the government's plan to end the crisis is currently being blocked by a Federal court injunction for the Tampa to remain inside Australian territorial waters while a group of civil libertarians argue for the asylum seekers to be assessed in Australia on humanitarian grounds. It still remains unclear when the operation to move the asylum seekers will begin.