After Cambodia made the announcement on Wednesday, the following day Thailand recalled its ambassador from Cambodia for consultations in Bangkok. Cambodia immediately followed suit.

As a further retaliation, Thailand's Cabinet will be asked next week to junk a 2001 memorandum of understanding to end a sensitive maritime boundary dispute in the Gulf of Thailand, a report in the Bangkok Post newspaper said.

Resolution of the dispute is for the betterment of both countries as it would allow an ordered exploitation of suspected large amounts of natural gas and oil reserves on the ocean floor.

The memorandum was signed during the first Thai government of Thaksin Shinawatra who has since been sentenced to two years in jail over conflict of interest in business dealings.

Despite his checkered past, Cambodia made it official on state television this week that Thaksin -- on the run from Thai authorities for three years after being ousted in a coup -- had been appointed an economic adviser to the government.

He is also now a personal adviser to Cambodian Prime Minister Hun Sen, further enflaming relations between the two Asian nations and jeopardizing all negotiations over sea boundaries that could avoid resource wars.

Thai Foreign Minister Kasit Piromya has said it would not be in Thailand's best interests to talk with Cambodia over the boundaries because of the Thaksin appointment. Thailand would explore other ways to end the maritime dispute under international law.

Deputy Thai Prime Minister Suthep Thaugsuban said Thailand will downgrade relations if Phnom Penh continues its uncompromising attitude. "If Cambodia continues to adopt this hard line, then we must continue to downgrade relations and maybe seal off all border checkpoints."

The Thaksin appointment was not a total surprise to people in Thai political circles, and even expected by some.

It was mooted by Cambodian officials at a regional meeting of the Association of Southeast Asian Nations in Thailand's sea-side resort of Cha-am last month. After Cambodia went public over considering the appointment, Thailand said it hoped Cambodia would reconsider and downplayed the media coverage, saying that Cambodian comments would not be allowed to derail the conference.

The Thaksin appointment also puts pressure on another, long-simmering boundary dispute, this one on land, about 300 miles north east of Bangkok. The military of both countries periodically face each other in the Preah Vihear mountains around an 11th century Hindu temple of the same name.

The international court of justice ruled in 1962 that the temple was on Cambodian land. But the only access to the mountaintop building is on the Thai side, which Thai troops sealed off last summer.

Media reports in July said around 2,000 troops from both sides were stationed across from each other on border patrol. Cross-border incidents occasionally flare up, such as in October 2008 when two Cambodian troops died and seven Thai troops were wounded in a gun battle lasting an hour.

Border clashes make neighboring countries nervous of an outbreak of war that might send waves of refugees flooding into third-party territory. Singapore, also a member of ASEAN, has called on the two countries not to break off diplomatic relations.

The September 2006 coup sent Thaksin into exile, mainly in the United Kingdom, where the purported billionaire bought the Manchester City football club.

He returned to Thailand when his political allies won power in 2007. But his wife, Pojaman, was sentenced in 2008 to three years in jail for tax fraud, and soon after Thaksin, 60, received a two-year sentence. He fled before handing himself in, leaving an estimated $2 billion in frozen assets.

Thaksin's eventual fate is important to Thailand's government. Prime Minister Abhisit Vejjajiva, 45, a member of the Democrat Party, heads a large coalition government that fears Thaksin could pose a credible election threat if he returns to the country.

Many of his supporters are in the United Front for Democracy against Dictatorship Party that has demonstrated for a royal pardon by the ailing king.

Also, the main opposition party, the Puea Thai, is made up of colleagues from Thaksin's own defunct party, Thai Rak Thai, which was banned in 2007 for violation of election laws. As a former police officer, the government fears that Thaksin could call in favors among senior policemen and also some military leaders in any election, possibly next year.

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