Some 2,000 Maoist supporters and the rebel leader Prachanda attended the welcoming celebration held for the two men Friday evening.

"The fusion of the armed conflict and the people’s movement has opened new doors for establishing a new Nepal," said Mohan Baidya, one of the two men released from prison Thursday.

Baidya had been a chief advisor to rebel leader Prachanda prior to his imprisonment in 2003, and told an ecstatic crowd Friday that he planned to again be "actively engaged in politics."

Chandra Prasad Gajurel, the other senior leader released Thursday said he also intended to return to politics after 40 months in Indian jails.

"Nepal’s revolution is heading towards a turning point. I feel there is a greater role for me to fulfil my responsibilities," said the senior leader.

During the two-hour welcoming ceremony, rebel leader Prachanda placed garlands of white flowers on the two men, to extended applause by the crowd in a large conference centre in Kathmandu.

Baidya and Gajurel were freed from a jail in India’s West Bengal state late Thursday, travelled across India’s land border with Nepal and flew to the capital.

Gajurel and Baidya had faced charges of conspiring against India.

But the charges were dropped after Nepal’s government and the rebel movement signed a landmark peace deal earlier this month ending a decade of civil war that claimed over 12,500 lives.

The communist-ruled state of West Bengal "withdrew all charges against the Maoists and released them following a request from their (Maoist) chief Prachanda," Raj Kanojia, the state’s police inspector general, said.

The Maoists were arrested in India on charges of seeking to help ultra-leftist guerrillas who say they are battling for better lives for landless farmers, neglected tribes and impoverished labourers.

India’s Maoists, who struck an alliance with their comrades in Nepal in 2001, are active in a so-called "red corridor" that runs through 15 of India’s 29 states, from the southern state of Andhra Pradesh to the frontier with Nepal.

In West Bengal, a jubilant crowd shouting "Down with Nepal’s monarchy" turned out to welcome the Maoist leaders as they emerged from Jalpaiguri Central Jail, 550 kilometers (341 miles) north of state capital Kolkata.

Soon after Nepal’s King Gyanendra was forced to end 14 months of direct rule following mass protests in April, hundreds of Maoists held in Nepali jails were freed.

After the king restored parliament, the two sides agreed to a ceasefire and the parties formed a government that stripped the king of most powers, including control of the army, paving the way for the peace deal.