Nepal's seven-party opposition alliance called off a massive protest planned for Tuesday, replacing it with a "victory rally" following the king's decision to restore democracy in the Himalayan kingdom.

CNN's Satinder Bindra, reporting Tuesday from the capital of Kathmandu, said officials were expecting a rally of 700,000 to 800,000 in the city of 1.5 million.

King Gyanendra announced late Monday he was reinstating the Parliament he dissolved more than a year ago, giving in to demands of the alliance that launched the protests three weeks ago.

News services, however, reported Tuesday that Maoist rebels rejected the king's offer to reinstate Parliament.

Additionally, the Reuters news service reported that the Maoists announced a blockade of Kathmandu and district capitals.

Maoist leader Prachanda called on the Nepalese people to continue peaceful street protests until elections were called for a special assembly to write a new constitution, Reuters reported.

Despite the reports on the Maoists' reaction, hopes remain high for a return to a lasting peace in the nation, with the chief of the army telling CNN the military was backing the democratic process.

The army has been the major force supporting the absolute rule of the monarchy in Nepal during the past 14 months.

A "sense of normality" had returned to Kathmandu, Bindra reported, with "smiles back on faces and traffic back on the streets."

Shops were reopening and mobile phone services had also been restored.

The protests during the past three weeks paralyzed Kathmandu, causing shortages of food and goods, and forcing residents to shop during the brief times that the curfews were lifted.