TORONTO - The Liberal government needs to restore respect for the rule of law in Caledonia, Ontario's Opposition leader said Wednesday as the southern Ontario town prepares to mark the two-year anniversary of a bitter and divisive aboriginal occupation.

John Tory cited the growth of the illegal cigarette industry, the struggles of developers on the Grand River and the spread of native blockades across Ontario as proof that lawlessness has become rampant throughout the First Nations community at large.

"(Premier) Dalton McGuinty's Liberals are letting respect for the law -- the backbone of our entire system -- crumble and we just can't stand by and let it happen,'' Tory said.

"We live in Ontario, not the OK Corral. It's time the actions of Ontario's premier and his government reflect that.''

Developers seeking to build in the area are also being asked to pay "development fees,'' which Tory described as akin to extortion.

The climate created by the Liberals has left the Ontario Provincial Police confused about how to police the occupation -- the result, he said, of an overzealous reading of the final report from the inquiry into the police shooting of aboriginal protester Dudley George at Ipperwash Provincial Park in 1995.

"(The report) talked a lot about the OPP framework for policing and talked a lot about democratic accommodation and mutual respect -- minimizing the use of force,'' Tory said.

"What (the report) didn't recommend is that everybody should take a hands-off approach to all kinds of incidents.''

The problems extend beyond the First Nations community, Tory added, citing the controversy over the botched prosecution of six Toronto drug squad officers facing corruption charges.

A judge stayed the charges because the case was taking too long to get to trial, prompting opposition calls for a public inquiry.

On Wednesday, McGuinty ruled out the possibility of a public inquiry in the police corruption case.

But he praised the work of provincial police on the Caledonia occupation, given the situation's volatile nature and the constraints imposed by the Ipperwash inquiry.

He also dismissed Tory's concerns and insisted progress is being made on the First Nations file.

A new standalone Ministry of Aboriginal Affairs and a new agreement on gaming revenues ratified last week are all part of a Liberal plan to "gain more and more moral authority'' with the First Nations community, McGuinty said.

By "depositing on an ongoing basis a lot of political capital in the bank,'' the government will develop the clout it needs to say "we don't do business like that in Ontario'' when aboriginal communities seek to make gains through controversial means, he said.

"Fundamentally, this is an old dispute between the First Nations community and the federal government, and until they can resolve their outstanding differences, we are where the rubber meets the road -- being responsible for enforcement of the law.''

"I think the OPP have, all things considered, performed admirably.''

First Nations protesters first descended on the disputed former housing development in February 2006. The province has since purchased the land, but the blockade persists while negotiations continue, much to the dismay of local residents.

The Conservatives are asking the government to state clearly that there is but "one rule of law for everyone'' in the province and to produce a policy making it clear it will not negotiate with any group involved in an illegal occupation.

Tory also wants a commitment from the government that it will not stand in the way of police and that it will launch an independent review of the "chaos presently enveloping our justice system.''