E—No. 1 Sec. 11.

2. In my predecessor's despatch of 6th July last, a chief named William Thompson, was alluded to as a leader of the rebels, who had a deep-rooted longing for separate nationality ; and it was added that a letter from this man had "put an end to all doubt, and made it evident that if the Maoris would not submit, this part of the Colonv must be abandoned by all who will not yield obedience to the Maori law, the aptest symbol of which is the tomahawk." 3. From one of the enclosed letters it appears that William Thompson has in his own district founded, and supports, a School, and that on Thursday, the 17th of October, he was found with his son engaged in ploughing the School land, from the produce of which the children were to be supported: that they had been engaged at the work for some time, and were living in great personal discomforts to achieve so good an object. The School was found in a state of excellent order and discipline; the attainments of the children astonished the highly-educated gentleman who was sent up to inspect it, and this leader of rebels seemed much pleased when he found the Government had sent up a person to inspect the school. It is thought that William Thompson wishes to come to see me and arrange everything, but that a fear of the most violent of his countrymen will probably prevent him from doing this. 4. Your Grace will next find that there are three classes of Waikato Natives who have engaged in the war at Taranaki:—

I. The Ngatihaua tribe whom Wetini led, who suffered severely, and have no plunder. IT. The Waikato tribe, who fought fairly, and have very little plunder. 111. The Ngatimaniapoto under Rewi, who have lost very few men; did all the house-burning business, pud who possess lots of plunder, which they will not give up. 5. As might naturally be expected from such a state of things, Rewi and most of the Chiefs of his part of the country, who have all the plunder from Taranaki, refuse even to be present at a great meeting which is to be held to consider what is best to be done now I have arrived. In short, Rewi and his followers set all the rest of the Waikato Chiefs at defiance; being in an inaccessible part of the country, and evidently determined to hold the booty they have. 6. Your Grace will also find that the wife of the so-called Native King, in compliance with the views of those of the Natives who wish to return to their own customs, has had her lips tattoo'd. For this her husband's own Council have fined her £10, and the Chief who did it £5; thus showing which way their views lean; whilst the Chief who tattoo'd the lady's lips, despising alike the King and his Council, refuses to pay the fine. 7. Again, in the midst of this supposed dangerous country quietly resides a Mr. Armitage, an intelligent, enterprising gentleman. English Government or Maori King (neither of whom has any power in his district) are alike to him. Not minding the English law to the contrary, he leases a piece of land direct from the Natives, puts up a notice on the old path which crosses the land so leased, warning pedestrians to go to the left; and with absolute impartiality towards all races, further notifies that he shall fine all trespassers one shilling, and that if he sees any one, whether Maori or European, upon the old path, he shall come out in person to collect the said sum. I think, if the so-called Maori King had, even upon land which was his own personal property, assumed the powers that Mr. Armitage has, it would have been considered an act of open rebellion ; yet the Maoris are very imitative people, and it is quite probable they will follow the example set them. 8. I next enclose two letters from a Chief at Raglan, not distant many miles from the residence of the so-called Maori King. This Chief cares nothing for the King, and administers law based on the issue of English forms of summonses and distress warrants. But his style of administration is rude, although undoubtedly vigorous. Such as it is, it finds so much favor in the eyes of Englishmen, who can in no other way obtain justice in that district, that they petition that a salary of £30 a year may be given to this active Magistrate. These letters are well worthy of your Grace's perusal. 9. I think your Grace will find that all the facts detailed in the letters I have alluded to, show that what is really wanted in the Waikato district is the establishment of law and order; and that there is no man or body of men in it, with whom we can treat as having power to bind others. 10. The great difficulty of acting on this view of the matter will, I fear, be the spirit of race which undoubtedly prevails on both sides. It is difficult to retract without offending English prejudices, after it has been publicly declared that the terms demanded of the Waikato Natives would be enforced; and the enclosed copy of a letter from my predecessor to the General will show that there is much fear that many persons will believe I have come here to make a peace with the Natives on their , own terms. Your Grace will, I know, form a calm and dispassionate judgment, on this subject, after considering the present state of the country. I have, &c, G. Grey. P. S.—Since this despatch was written, the enclosed letter has been received from another Waikato Native, who wishes to be made an Assessor. G. G. pis Grace the Duke of Newcastle, K. G,, Sec, &c, &c.

EncicMur. No. a—Hetaraka t0 the Governor, ' ' ep '' '

nor Browne toammtn\ Cameron, asth July, Met,

Enclosure n». ..—H_i Katipa. nth Oct., nwi.

Enclosure 1 in No. 5. Mopuhopu, October 14th, 1861. Mr dear Mr. Fox, — You will like to receive a few lines from Waikato, if it i 3 only to tell you that there is not jnuch to say. The people on the riyer do not talk much about the king or flag; but those who do

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TO THE SECRETARY OF STATE.