Roy Bennett, meant to be deputy agriculture minister in the new administration, was arrested before ministers were sworn in last Friday, on charges of illegally possessing firearms for purposes of trying to commit acts of insurgency, banditry and terrorism.

He was also accused of violating the Immigration Act for trying to leave the country illegally.

Lawyers for Bennett had asked the court hearing his case in the eastern city of Mutare to drop the charges, saying a court had thrown out similar ones in a related case in 2006.

"There is reasonable suspicion that on the first count (of insurgency, terrorism) he committed the offence. He will be placed on remand," magistrate Livingstone Chipadza ruled on Wednesday. He dismissed the immigration charge, however.

Bennett recently returned to Zimbabwe from exile in South Africa after fleeing nearly three years ago because police wanted to question him over the discovery of an arms cache.

The Movement for Democratic Change has slammed the charges against the former white farmer, a founding party member who was one of Mugabe's most outspoken critics.

But the MDC may be reluctant to quit the new unity government formed to lead the country out of an economic crisis marked by soaring inflation, food shortages and a humanitarian crisis including a cholera outbreak that has killed more than 3,700 people since August.

Prices Double Daily

Zimbabweans face unemployment above 90 percent and prices that double every day.

On Wednesday, striking teachers rejected foreign currency allowances offered by the government to state workers, vowing to press on with a boycott that has seen many schools failing to open for the new year. State hospitals have also virtually closed after nurses and doctors walked out.

Newly appointed Finance Minister Tendai Biti of the MDC told reporters the government had revised a plan to give all civil servants grocery vouchers and would now pay each worker $100.

Biti said government had started paying soldiers in the barracks on Tuesday and would pay teachers, who make up the bulk of Zimbabwe's estimated 130,000 civil service, on Wednesday.

But Tendai Chikowore, head of the Zimbabwe Teachers' Association, told Reuters the offer fell below expectations. A smaller teachers' group wants as much as $2,300 in salaries.

"I don't think a flat allowance for all civil servants will be acceptable without addressing the salary issue," Chikowore said.

Biti declined to say where the cash-strapped government would source the foreign currency to pay public servants.

"The source of the money is another thing, we have improvised. The main theme of this government is getting Zimbabwe back at work. We want teachers back in school and nurses back in the hospitals," he said.

Biti said using multiple currencies would help drive Zimbabwe's inflation down from around 231 million percent, according to figures last published in July. He said release of the data would resume in March.

"Now that the country has embraced the use of multiple currencies which are relatively stable, government expects all businesses to act responsibly on pricing of goods and services in order to create confidence in the economy," Biti said.

Long-time rivals Mugabe and MDC leader Morgan Tsvangirai last week formed a unity government after months of wrangling, with Tsvangirai taking the post of prime minister.