MADRID, Spain (AP) _ A day after Basque's armed separatist group, ETA, stated its demands for resuming talks with Madrid, French police arrested two suspected group members, possibly dealing a blow to the peace process.

Police arrested Belen Gonzalez Penalva and Cipriano Fernandez Garcia in the southern town of Pau. News reports said the two had been armed and carrying false identity papers.

Gonzalez Penalva took part in talks between the last Spanish government and ETA in Algeria in 1989, and was reported to be involved in the only round of talks held with the current government since the group announced a cease-fire in September, 1998.

Interior Minister Jaime Mayor Oreja praised the detentions, saying they demonstrated the fine degree of cooperation between Spain and France.

But others, including politicians from the third-ranking United Left coalition and the Basque Nationalist Party, said the arrests had endangered the peace process.

On Sunday, a Basque newspaper published an ETA statement saying the group sent a letter urging a second round of talks with conservative Prime Minster Jose Maria Aznar's government. The statement also listed the group's demands for ending three decades of separatist strife in the northern region.

Aznar said Monday the government was ready to restart the peace talks, which broke off in July, but he ruled out independence for Basque and any other political concessions.

He called ETA's demands ``a propaganda exercise designed for domestic consumption,'' local media reported.

In the first round of talks, held in Switzerland, the government said it would discuss the early release of 400 ETA prisoners only if the group turned its 13-month cease-fire into a permanent renunciation of violence. ETA's 30-year-old campaign of bombings and other attacks has left nearly 800 people dead.

But ETA pulled out of those talks, accusing Aznar of using the peace process for political gain ahead of general elections next year.

Now, ETA wants to discuss whether the government would give those in Basque the right to decide their own future, news reports said Sunday.

The group also wanted to talk about the possibilities of Spanish police and military forces leaving the Basque country, and proposed a new negotiating team composed of three jailed members who were considered among its most active operatives.