President Evo Morales has said that he is scrapping plans to build a road through a nature reserve in Bolivia's jungle lowlands, bowing to public pressure after a two-month protest march by Amazon Indians.
Mr Morales did not abandon the idea of a road through Bolivia linking Brazil with the Pacific coast, but said it would no longer cut through the pristine Isiboro-Secure Indigenous Territory National Park, or Tipnis.
"And so the matter is resolved," Mr Morales told reporters. "For me, this is called governing by obeying the people."
More than 100 protesters remained camped in front of the presidential palace, two days after activists ended their trek from the Amazon reserve to La Paz, the world's highest capital.
The march galvanised opposition to the Brazilian-funded road and highlighted claims that Mr Morales - an Aymara - has favoured Bolivia's majority Aymara and Quechua highland Indians over indigenous groups from the country's lowland jungle.
Bolivia's leftist president said he would veto a law passed last week that green-lighted the road as originally proposed. He said he would insist it be amended to declare the reserve off limits to the highway as well as to the settlement by colonists.
The 15,000 Indians who inhabit the reserve fear encroachment by other settlers, while the highway's supporters argue it is needed to promote the development of Bolivia's poorer regions.
Mr Morales' popularity plunged after he insisted on the route through Tipnis and was further battered when police used tear gas and truncheons to to try to break up the march.
The police crackdown backfired. The defence minister quit in protest and the interior minister resigned.
Bolivians harangued Mr Morales for the use of force against peaceful protesters and for allegedly betraying his credentials as an environmentalist and champion of Bolivia's long downtrodden indigenous majority.