Tuhoe says the Government has caved in to unwarranted political unease in National Party ranks by its decision to rule out giving the tribe ownership of the Te Urewera National Park as part of its settlement.
Mr Key yesterday told Tuhoe negotiators that transferring ownership of the 212,672ha Te Urewera national park to the iwi was not acceptable to the Government.
He also broke from usual practice by announcing the decision publicly, saying the matter had to be cleared up following a series of media stories about the possibility of the transfer happening.
The decision has come as a blow to Tuhoe, which was expecting the ownership transfer in a second settlement offer from the Crown.
Tuhoe's chief negotiator, Tamati Kruger, voiced disgust at the decision, saying the "eleventh hour" decision to pull the proposal was prompted by "a failure of nerve and loss of resolve".
Last night the Maori Party co-leader, Tariana Turia, said: "As a Maori Party leader I'm tired of the politics of race being brought into the equation - this is an issue of leadership and justice.
"Tuhoe have behaved with honour right throughout the negotiation process. I question what we see happening here."
Tuhoe representatives had met several ministers, other politicians and local interest groups to reassure them about access to the park and the way Tuhoe would run it.
"Despite overwhelming public support, internal National Party political concerns have won out. We believe these concerns are based on superstition and not fact," they said.
Some ministers are understood to be concerned about the issue coming so close on the back of heightened sensitivities over mining on conservation land as well as proposals to allow customary title claims over the foreshore and seabed.
However, Mr Key denied it was because of unease about the potential public reaction to such a move. His main concern was about the precedent it would set.
It was a major departure from the usual practices in dealing with substantial lands in settlements and would have been the first time such a significant piece of the Conservation estate had been handed over to an iwi.
Mr Key acknowledged that it was a strong wish of Tuhoe's and that they were willing to guarantee public access and ensure it was managed in a way akin to a national park.
"We understand that. But it's also been a long-held view from the Government that that would be very challenging - and they were always aware it would be very challenging."
The decision will imperil the Government's chances of reaching a timely settlement with Tuhoe - ownership of that area was one of its "bottom lines" and one of the main reasons it rejected the Crown's first settlement offer.
The negotiators would seek an explanation from the Cabinet.
Key refuses to hand over park to Tuhoe
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