At mid-morning yesterday, accompanied by several uniformed officers, Sydney police commissioner Peter Ryan arrived in Victoria Park and strode towards an Aboriginal tent "embassy" pitched in a shaded corner.

His progress was watched by the indigenous Australians and their supporters, who had just then been listening to a veteran Aboriginal leader, Isabell Coe - arrested so many times she says she has lost count - calling on people to join a march through Sydney to highlight their grievances.

Mr Ryan made his way to where a log fire was burning in the centre of the gathering, and there, standing beside Isabell Coe, he placed gum-tree (eucalyptus) leaves on the flames, sending up a choking grey cloud of smoke which momentarily obscured a banner declaring "Self-determination and Sovereignty", and a black-and-red Aboriginal flag with yellow orb.

There was scattered applause. This was a gesture of peace from the police, however tactical, on a day when Sydney desperately wanted to avoid any protest that might spoil the joyful celebrations at the opening of the 27th summer Olympics.

Victoria Park has for days been a rallying point for Aboriginal supporters and was to be the starting point of a much-anticipated march yesterday which had raised fears of conflict with the police. But for several days rank-and-file police officers have been joining with Aborigines and their friends in placing gum leaves on the burning logs of the Sacred Fire for Peace and Justice.

The fire was lit on August 31st from a sacred flame brought to Sydney by Kevin Buzzacott, an Arabunna elder, on an epic 86-day, 3,000-kilometre "reconciliation trek" paralleling the Olympic torch relay.

"There were some statements made about violence," said Mr Ryan, "but we now have a spirit of friendship and co-operation. This visit is to reinforce that friendship."

The Aboriginal activists did march later from the park to the office of New South Wales premier Bob Carr, and there were a tense few moments between 300 demonstrators and mounted police, but it ended peacefully.

The gesture of the police commissioner was appreciated by Coe, a member of the Wiradjuri tribe of New South Wales, dressed in Aboriginal shawl over blue jeans. "It sends a message to all police that we do not want confrontation and we are not against the Olympics and they should respect what we are doing," she said.

She added, however, referring to Sydney's defeat of Beijing in the battle for the 2000 Olympics: "China did not get the Olympics because of human rights abuses, but what about Australia's human rights?"

The tent embassy is designed to attract the attention of the international media, and Isabell Coe said they had achieved considerable success. This was the way ahead, she said, rather than the tactics of more militant Aboriginals such as Charlie Perkins, who said earlier this year that Sydney would "burn, baby, burn".

The blunted militancy of the Aboriginals reflects a changing mood in Australia towards what many whites still refer to as the "Aboriginal problem". Despite the refusal of the Prime Minister, John Howard, to apologise to the Aboriginals for their inhuman treatment by white settlers, or to join a march of 200,000 across Sydney Harbour Bridge for reconciliation, there is a growing realisation among Australians of the horrors Aboriginals suffered, especially in the early years of occupation.

They were dispossessed of their land after 40,000 years of tenure, given clothes infected with typhoid, butchered for dog meat and shot for sport.

Until relatively recently their children were forcibly seized to be reared in a "civilised" manner. As many as one in 10 of Aboriginal children were officially kidnapped in this way between 1910 and 1971, creating a traumatised "Lost Generation".

"Because the invasion was illegal in international law, all white people are here illegally," said Isabell Coe. "Through recognising Aboriginal sovereignty their presence in this country can be legitimised. Up to now it's been a genocidal war and we want to end it. But it won't be with the present leaders. They called Australia an empty country when they arrived and they are still trying to empty it. They are just using different methods."

She referred in particular to the locking up of Aborigines in prisons, the only national institution where they enjoyed majority status, she said.

Demoralised Aborigines are often incarcerated for simple drunkenness, and in the Northern Territories automatically jailed for any offence.

Now comprising just 2 per cent of the population, there are seven Aboriginals per thousand in prison, compared to one white person per thousand. They have a life expectancy 20 years less than whites, three times the percentage of unemployed and four times the infant mortality rate.

Given the depth of Aboriginal anger, the police expected bigger protests in support of their campaign for sovereignty, an apology, a peace treaty, an end to mandatory sentencing, and compensation for the Stolen Generation.

A human-chain protest on the road from the airport, which organiser Jenny Munroe of the Sydney Aboriginal Land Council said would attract 2,000 people, did not materialise, despite police permission. A planned protest city outside the Olympic site was abandoned.

Aboriginal leaders are bitterly divided on tactics, but they were also psychologically overwhelmed by the immense wave of patriotic fervour accompanying the Olympic flame, which seemed to impart a benediction of pure joy on every sports-crazy community through which it passed.

However, the Aboriginal presence is being felt as Sydney marks the Olympiad.

The most celebrated indigenous painters are being displayed in the New South Wales art gallery, and part of the opening ceremony last night was devoted to Aboriginal performance. Nine Aboriginals are included on the Olympic team.

Then the Australian Olympic Committee produced Aboriginal athlete Cathy Freeman to light the Olympic torch. It was a spectacular gesture towards unity and reconciliation, made in the one area most Australians relate to - sport.

"Sport and politics do mix," said Aboriginal leader Geoff Clarke, chairman of the country's biggest indigenous body, the Aboriginal and Torres Strait Islander Commission. "Our hope, not surprisingly now, is for black gold."

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