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When white settlers first came to this mountain town on the Allegany Reservation more than 150 years ago, they found virgin land covered with forest and threaded by icy rivers. They put down roots, building railroads, homes, churches and businesses, and they maintained a degree of harmony with the Indians who owned the land and leased it to them.

Today that harmony is threatened. With the expiration of Salamanca`s 99-year leases last year, the Seneca Nation imposed tough new terms on the more than 3,000 leases it holds. And many of the town`s residents are fighting them.

The original leases were created under the terms of the Seneca Nation Settlement Act, passed by Congress in 1890 to ensure Indian ownership of reservation land. It required residents to pay for the use of their property, but that payment could be as little as one dollar a year under the Settlement Act.

The terms of the new leases have opened the way for claims by the Seneca Nation against hundreds of the town`s homes and buildings that sit on the reservation. Now some of the descendants of the town`s founding fathers are considering the annihilation of their town.

”If I can`t have my house, I`ll burn it or have it destroyed. I`ll have it bulldozed right into the foundation,” said Kevin Hill, 37. ”And I know there`s a lot of people behind me that feel the same way.”

Hill and about 300 other townspeople have rejected the new 40-year leases. He complained his lease offers no protections or guarantees for his home or for the tens of thousands of dollars in improvements he has poured into it. But without a lease, he faces eviction.

”This is like going to the electric chair,” said Gert Skularek, who was in tears when she arrived at the Seneca Nation`s headquarters to sign her new lease a couple of months ago. ”We were friends with the Indians. But I don`t like what they`re doing to us.”

In November 1990, Congress set the terms of the new leases for Salamanca, the only town in the country that lies almost entirely on a recognized Indian reservation. It authorized $60 million in compensation to the Seneca Nation from the federal and New York state governments. It also aimed to redress the discriminatory nature of the old leases, allowing the Seneca Nation to increase its annual income from the town from $50,000 to $800,000.

But critics here say Congress went too far, creating legislation that was vague and that intentionally failed to spell out the terms of ownership or establish a mechanism for the resolution of land disputes.

Joseph Fluent, president of the Salamanca Coalition of United Taxpayers

(SCOUT), attempted to contest the leases. However, U.S. courts have no jursidiction over disputes involving the Seneca Nation because, like other tribes, it is considered a sovereign nation.

”I believe the Nation has been ripped off,” said Fluent, a fourth-generation resident who refused to sign his lease. ”But I don`t believe it was done by the people of this community, and we shouldn`t have to pay for it.”

Fluent and other members of SCOUT worry that some of the Senecas want to take over their homes because they face their own housing and land shortages. To prevent that from happening, Fluent spearheaded a political campaign last year that led to the election of a new mayor and five city council members who support the goals of SCOUT.

Since taking office this month, the new government has petitioned Congress to give the town a hearing on land disputes in Salamanca. They have not received a response.

”They don`t understand they are living on foreign land,” said Yolaine John, a Seneca from the nearby Cattaraugus Reservation. ”They don`t have rights here. We feel the land should go back to the Indians.”

SCOUT members say they will not let that happen.

In the event of an eviction, Fluent said, ”the church bells will ring and the people will be advised of where the eviction is, join arms and prevent it.”

Hope that the new Settlement Act would put an end to years of anxiety over the leases evaporated when Daryl and Gail Wetherby dug their home out of its foundation and hauled it to a piece of property beyond the Allegany Reservation to escape the terms of their lease.

Seneca President John Calvin had announced that the house belonged to the Seneca Nation since it was built on Seneca land and demanded that the couple put it back. Ultimately, Calvin let that case slide; but he has since enlisted the town`s banks, which have outstanding loans on many of the homes, to halt similar moves. No houses have been moved since then.

Carol Moses, a Seneca woman, told a meeting of SCOUT members that they had only themselves to blame.

”If your forefathers had any real insight,” she said, ”we could have lived in harmony right up until this very day, and the leases wouldn`t have been so ugly-because they are ugly.

”But the fact is, your laws are going to evict you. I`m sorry to hear that, but you made these laws and we had to live under them.”