The government is under a lot of pressure to hold new elections, but knows that the populists (red shirts) probably still have most of the votes. Even many royalists (yellow shirts) are not enthusiastic about establishing a kind of police state to prevent the majority of Thai voters from electing the kind of government they want. The government has to do something, as the uncertainty is bad for foreign (and domestic) investment, and the tourist trade. Fewer jobs and a shrinking economy will simply create more unrest.
There's growing (and embarrassing) international and local pressure for the government to reveal who has been arrested since the May 19th Emergency Decree. The government tried to arrest as many red shirt leaders as it could, and picked up a lot of people who were suspects, and not really involved. Meanwhile, the government is seeking to arrest members of parliament (MPs) suspected of supporting the red shirts. MPs lose their immunity from arrest when parliament is in recess, so the police are gathering their evidence. This sort of thing has made the opposition more determined to force new elections, or any kind of action that would remove the current government. Most of the red shirts are still out there, with sufficient leaders to keep the movement together, and a danger to the government. This war is not over.
June 3, 2010: In the south, three bombs went off, wounding five people. The Islamic terrorists continue to be active, but are less deadly, and more of a nuisance.
May 30, 2010: The government lifted the curfew in most of the country (including the capital). The curfew had been imposed ten days ago, as the government unleashed the security forces to clear the streets of red shirt demonstrators.