In the middle of the worst intra-loyalist violence since the mid-1970s, a local wag from Belfast's Shankill Road quipped that the security forces would have to build a new peaceline in the area, only this one would be to keep Protestants apart from Protestants.

As the faction fighting between the Ulster Defence Association and Ulster Volunteer Force intensifies in this loyalist heartland, housing estates and streets in certain parts of the Shankill are becoming no-go areas for members and supporters of the warring parties.

Over the past 72 hours scores of UVF members, their families (including an 80-year-old woman) and their sympathisers have been driven from their homes in the Lower Shankill estate. The UDA's West Belfast Brigade has carried out a form of intra-Protestant ethnic cleansing, turning the estate into a kind of UVF-free ghetto.

The tactics used in these expulsions are remarkably similar to those employed by loyalist terrorists over the past 30 years against Catholic families living in predominantly Protestant areas. Petrolbombs hurled at homes, shots fired through windows, mobs smashing down doors and ransacking houses.

In one attack the UDA's junior wing, the Ulster Young Militants, even smashed a portrait of Edward Carson, the founding father of Ulster Unionism, inside a house belonging to a UVF supporter.

Large sections of the British and Irish media have sought to portray the house-burnings, the gun attacks, and the double murder on Belfast's Crumlin Road as nothing more than a squalid turf war over drugs, criminal rackets and territory. (These are secondary factors.)

Peter Mandelson, the Northern Ireland Secretary, even claimed on Monday that the feud has nothing to do with the peace process. Mr Mandelson, however, should really start reading up on his contemporary history of Ulster loyalism. If he did so he would conclude that this feud has everything to do with the peace process and the Good Friday agreement.

In the mid-1970s the UDA and UVF fought out two bitter feuds which led to the deaths of leading loyalists including Hugh McVeigh, a member of the UDA's inner council. McVeigh, along with 19-year-old David Douglas, was abducted in April 1975 by the UVF during one of the feuds. Their badly decomposed bodies were not found until five months later on a hillside overlooking the North Channel in east Antrim.

It was no coincidence that these murderous feuds came at a time of political instability and deep unease about the future within the general unionist population. The first, in 1974, took place just two months after the loyalist victory of the Ulster Workers' strike. Loyalism was searching for a political way forward following the power-sharing executive's collapse.

Since the earliest days of the Troubles there has been a tradition that when one loyalist group tries to reach out the hand of friendship to its enemies across the peaceline, the other becomes more sectarian and belligerent in a bid for supremacy.

Elements in the UVF were seeking compromise with nationalists and republicans; the UDA in a bid to gain hegemony within the Protestant community rejected any attempt to make peace with loyalism's traditional enemies. The latter painted their rivals as crypto-communists for holding peace talks with the likes of the Official IRA.

Twenty-six years after these feuds and two years on from the Belfast Agreement, loyalism once again searches for a way forward.

The UVF and its political wing, the Progressive Unionist Party, have a stake in the peace process and the new power-sharing coalition. They have two articulate and media-friendly Assembly members, Billy Hutchinson and David Ervine. This duo help prop up David Trimble's narrow majority of pro-Agreement Ulster Unionist Party members at Stormont.

Their military leaders are more enthusiastic about the agreement than their rivals in the UDA, believing that loyalists can control their own destiny by participating in the political process and should take on Sinn Fein politically.

By contrast the UDA or, more accurately, certain sections of that organisation, seem cut adrift from the present political process. Crucially, none of the UDA's political spokesmen in the Ulster Democratic Party got elected to the Assembly. There is a perception within their ranks, particularly in places like the Shankill Road, that the largest loyalist paramilitary group got nothing back for its investment in the peace process.

There is also a widespread belief (however paranoid that may be) that the process is biased in favour of republicans and that the British government is principally concerned with keeping Sinn Fein happy. The influence on the UDA's ruling body, the Inner Council, of Gary McMichael, David Adams and even Johnny Adair's close associate, John White, all of them pro-Agreement, has waned considerably.

Unlike the UVF, which is run on strict centrist lines, the UDA is a loose federal alliance subject to the conflicting whims of individual "brigadiers". Even before this current crisis there was dangerous disunion inside the Inner Council over the Agreement. At least three UDA "brigadiers" representing north Antrim/Derry city, east Antrim and west Belfast were known to be opposed to the political process and, in particular, an Executive that includes Sinn Fein.

The East Antrim UDA has been prosecuting a three-year campaign of sectarian intimidation against vulnerable Catholics living in places like Larne and Carrickfergus. Housing estates and even private developments have been totally "cleansed" of Catholics during the annual Drumcree disturbances.

Governments might turn a blind eye to this activity, but the truth is that, in east Antrim, the UDA ceasefire barely exists. Even those opposed to the aggressive stance of Adair and his supporters, such as the South Belfast UDA, are now thought to be lukewarm about the agreement.

In the past Adair and his allies have attempted to paint the UVF as the tired old men of loyalism who have given up the struggle for a place in the political sun. One of the Shankill UDA's favourite taunts against the UVF was to call them the "peace people" because of the latter's desire to end loyalist violence and pursue compromise with republicans.

The UVF, on the other hand, regards this faction of the UDA as "political buffoons" whose actions are discrediting loyalism and providing more ammunition to anti-Agreement unionist politicians.

Adair's own prominence is also clearly a factor behind the explosion in intra-loyalist violence, which has been bubbling beneath the surface since the start of this year. The UVF is wary of his growing friendship with the Loyalist Volunteer Force, the anti-ceasefire group founded by Billy Wright in 1996.

They are worried that Adair and his allies are seeking to form a new realignment of loyalism, uniting the UDA and LVF into one Protestant paramilitary group, the internal logic of which is a slide back to war.

The real winners of this latest UDA-UVF feud are the anti-Agreement unionists. They will argue that the Trimbleistas are indirectly responsible for the chaos and death in Protestant areas, that the Agreement let armed and unrepentant terrorists back on to the streets.

The anti-Agreement forces within the UUP will use the struggle for the Shankill in their campaign to edge Trimble out and force his party to retreat from the Agreement. Their battle cry at the forthcoming South Antrim by-election, the UUP conference and the British general election is likely to be: "We told you so."

The peace process and the Agreement have left unionism and loyalism more fractured and bitterly divided than at any time in history. Now that rupture is quite literally becoming physical with areas like the Shankill dividing into pro- and anti-Agreement paramilitary zones in which only a 12ft peace wall or a line of British troops can prevent them from slaughtering each other.

Henry McDonald is Ireland Correspondent of the Observer and co- author (with Jim Cusack, Irish Times Security Editor) of UVF, published by Poolbeg