Velma Thomas remembers when "spotters" were posted across Nebraska's Santee Reservation to warn casino workers if an FBI agent had entered tribal lands.

Law officers eventually seized the tribe's gaming machines, put a freeze on tribal bank accounts, imposed daily fines of $6,000 and threatened to imprison all tribal council members.

"They had this tribe up against a wall," said Thomas, who was the Ohiya Casino manager during the years the tribe and the state of Nebraska failed to negotiate a gaming compact.

Even without a compact, the tribe opened a casino and offered Class III slot machines to players. Eventually, though, the burden of operating an illegal casino forced the Santee to give up slots in favor of Class II bingo machines.

Five years later, the casino generates a $600,000 payroll for the rural community.

But a new hurdle may be in order for the Santee and other Class II gaming operators in Indian Country. That's because the National Indian Gaming Commission - a federal oversight agency - aims to overhaul the definition of Class II machines.

"It basically would make every Class II machine on the floor in Indian Country illegal," said Elizabeth Homer, a former vice president of the NIGC. "They would become noncompliant."

The commission's proposed regulations are unpopular with tribes, and the NIGC announced last week in a Federal Register notice that the comment period for the new rules had been extended until this Friday.

The proposed changes come on the heels of a half-dozen appeals court cases lost by the U.S. Justice Department in which government lawyers argued that Class II machines - which allow players to participate in a national network of bingo machines and high-stake payouts - are really Class III, Las Vegas-style slot machines.

The NIGC's proposed regulatory changes reflect an ongoing jurisdictional conflict between tribes and state officials who each seek greater control of gambling.

While some governors continue to frown on Indian gaming, others have come to embrace it.

California Republican Gov. Arnold Schwarzeneggar first entered office with the intent of controlling tribal gaming operations. Then he learned that tribal sovereignty coupled with federal law trumped state law.

"Clearly, Gov. Schwarzenegger has recognized that Indian gaming is an important economic engine for California," said Ernie Stevens, president of the National Indian Gaming Association, a trade group. "And he's seeking to develop new partnerships with the tribal governments in California to create new jobs and more tribal and state revenue."

California tribes operate a $7 billion gambling industry.

Meanwhile, western Montana's Confederated Salish and Kootenai Tribes can be counted among a handful of tribes in the country that have been unable to reach a gambling compact with their state.

The impasse led the Salish and Kootenai to unplug every Class III machine on the Flathead Reservation on Nov. 30, including slot machines belonging to non-Indian casino owners.

The Salish and Kootenai are one of the few tribes nationwide that have agreed to let non-Indians operate Class III casino operations on their land. At the time, it was described as a goodwill gesture.

Harold Monteau, a Missoula-based attorney and former chairman of the NIGC, said the CSKT had one of the worst tribal-state gaming compacts in the country based in part on the low number of Class III machines they owned.

The tribes' proposed compact asked for as many machines as the state regulated for non-Indian operators, but Montana Gov. Brian Schweitzer rejected the proposal and all Class III machines now must be removed from the reservation by Friday.

"The state of Montana has a duty to negotiate with the Salish and Kootenai in good faith," said Stevens, at the National Indian Gaming Association. "They should be promoting jobs and economic development on the reservation. They should recognize they are partners with tribes in developing the economy of the region."

The CSKT has about 200 Class II machines that remained open after the state compact negotiations failed. And in October, the tribe announced its launch of a new gambling and dining business off U.S. Highway 93 near Missoula.

Overall, Class II gambling in Indian Country generates more than $3.4 billion a year, whereas Class III gambling operations bring in $19.2 billion.

The Seminole's Class II bingo operations account for nearly one-third of all Class II revenues in Indian Country, with an estimated $1 billion in annual revenue. In 1979, the Seminole became the first federally recognized tribe to operate a high stakes bingo operation, and led the way for a gambling revolution in Indian Country.

On Thursday, the tribe announced its purchase of the Hard Rock entertainment conglomerate - 124 cafes, five hotels, two concert venues and rock memorabilia - for $965 million.

"This is a proud moment for the Seminole Tribe of Florida and for all Indian tribes," Mitchell Cypress, chairman of the elected Tribal Council told the Associated Press. "It is also an opportunity for the Seminole Tribe to diversify its business operations and help a very successful company to achieve even greater growth."

The Santee Tribe's business portfolio doesn't compare to the Seminole, but they do embrace their casino for providing a payroll and job opportunities.

Santee Sioux tribal leaders battled for eight years with Nebraska and federal law agents over the right to keep their Class III casino open before moving to bingo-based machines in 2000.

"These Class II games helped us accomplish a goal, and that was to employ our people," said Thomas. "We have 30 tribal members employed. That was the whole purpose of Ohiya. We want to do better."

When the tribe opened without a state compact, unemployment on the reservation was more than 75 percent.

"It was destitute here," said Thomas. "The majority of casino employees didn't even have telephones. That small gaming operation opened up a whole new area of living that most Americans just take for granted. I'm really proud of our tribe. There was a fierce determination that we have to make a better way of life for people."