Authorities admitted yesterday that the two Abu Sayyaf hostages they believed had been freed had not yet been found and could well have been caught in the cross-fire between the Abu Sayyaf fighters and the soldiers in Tuburan town, Basilan, southern Philippines.

While there is continuing speculation in Basilan that Lalaine Chua and Luis Bautista lll were released by Abu Sayyaf earlier to an unnamed Muslim negotiator in Tuburan town, sources said that authorities were continuing to search for them.

The Chua and Bautista families have allegedly paid millions of pesos to the rebel group and the money sent to the negotiator to Basilan province. The military said they had no reports about the supposed release.

The Abu Sayyaf on Friday demanded $10 million for the release of Martin and Gracia Burnham, who were among the 20 people seized by the Abu Sayyaf May 27 at Dos Palmas resort. More than half of the original 20 hostages had been freed since early this month after their families reportedly paid huge ransom payments.

"As far as the military is concerned, the rescue operation is ongoing in the province...to free all the remaining hostages," said Major Alberto Gempilano, spokesman for the military forces in Basilan, several miles from the southern port city of Zamboanga even as Isabela City was rife with reports yesterday that the Abu Sayyaf would attack civilian targets in the provincial capital, to retaliate against an ongoing military offensive.

Meanwhile, security forces reportedly succeeded in attacking an Abu Sayyaf hideout in the capital town of Jolo in the southern Sulu province and killed rebel leader Commander Abdul Muksan after a brief gunbattle, said Army spokesman Major Alberto Gempilano, of the First Infantry Division.

"When the smoke cleared, Commander Muksan lay dead and he was still holding the trigger of his rifle. There were no military casualties," said Gempilano. Soldiers surrounded the hideout on Friday near the village of Capitol Site, outside the main business district, but the leader opened fire on them, triggering a brief exchange of automatic gun fire, said Gempilano.

Troops led by Army Capt. Alex Musngi raided the Abu Sayyaf hideout after villagers secretly informed the military about the presence of the rebel leader. Gempilano said Muksan was among those who closely guarded the 40 hostages who were separately kidnapped by the group in Malaysia and in Jolo in April and August. Muksan carried a (P1 million) reward for his capture dead or alive and was in the military's order of battle.

"We have warned the Abu Sayyaf to surrender peacefully to the government," Gempilano said. President Gloria Macapagal Arroyo has vowed to crush the Abu Sayyaf. She has sent more than 5,000 soldiers from the Army and the Marines to crush the Abu Sayyaf, but up to now, they have succeeded in attacking the Abu Sayyaf hideout in Jolo, not in Basilan.

In a related development, military spokesman Brig. Gen. Edilberto Adan reiterated accusations that former fighters of the Moro National Liberation Front (MNLF) and the separatist Moro Islamic Liberation Front (MILF) have been giving the Abu Sayyaf leaders sanctuary in Jolo and Basilan.

Members of the Moro Islamic Liberation Front (MILF) have said they are willing to leave their mountain hideouts in Basilan to allow the authorities to wage an all-out war against the Abu Sayyaf.