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Minister of Aboriginal Affairs and Northern Development Bernard Valcourt responds during question period in Ottawa on February 14, 2014.Sean Kilpatrick/The Canadian Press

The federal Conservative government has shelved the centrepiece of its aboriginal policy after proposals for improving on-reserve education were widely rejected by native leaders, and prompted the resignation of the national chief who had supported them.

Aboriginal Affairs Minister Bernard Valcourt put a hold Monday on the legislation known as the First Nations Control of First Nations Education Act, three days after Shawn Atleo stepped down as leader of the Assembly of First Nations, saying his endorsement of the bill was becoming a distraction.

Mr. Valcourt had relied on the support of the AFN and its leader to justify passage of the bill – which would have boosted spending by $1.9-billion over multiple years – over the objection of other chiefs. So, when Mr. Atleo resigned, he backed down. "Given the recent resignation of the national chief," his spokeswoman said in a statement on Monday, "following today's second reading vote, any further consideration of this legislation will be put on hold until the AFN clarifies its position."

The decision was greeted with relief by those chiefs who had spoken out against it, particularly provisions that would have tied new funding to standards set and monitored by Ottawa. But even those opponents said efforts to reform a system that is failing so many young indigenous people must continue.

"There is no time to kick and scream for joy here because we've got a lot of work to do," said Isadore Day, the chief of the Serpent River First Nation in Northern Ontario, who was one of the more outspoken critics.

"I think we achieved what we needed to," Mr. Day said of the news that the legislation would not be moving forward, at least in the short term. "Now the work begins to refine the position – from being reactionary and on the defence to putting forward what the plan ought to be for First Nations education."

Although there are some pockets of the country where reserve schools are working well, the national numbers are abysmal. A recent report by the C.D. Howe Institute, which was based on the 2011 national household survey, said 58 per cent of adults in their early twenties who were living on reserves had not completed high school.

Prime Minister Stephen Harper set native education as a top priority of his government's aboriginal portfolio. In 2010, he wrote to Mr. Atleo to propose a collaborative approach to improving the governance, framework and accountability for primary and secondary schools on reserve.

Mr. Atleo, who is passionate about improving the quality of life for young indigenous people, was heartened by Mr. Harper's interest and supportive of legislation tabled by Mr. Valcourt in Parliament earlier this year. On Feb. 7, he joined the Prime Minister in announcing that the government would commit an extra $1.9-billion to First Nations education, $1.25-billion of which would be spread over three years starting in 2016.

But many chiefs said the money was not enough to make substantial improvements when spread over multiple years and more than 600 First Nations. They also questioned why it was being delayed for two years.

Mr. Atleo's endorsement of the act was widely panned by First Nations leaders who said the government would maintain control over native education while downloading liability onto their communities. They pointed out that the AFN is not entitled to negotiate on their behalf – something readily acknowledged by Mr. Alteo.

The AFN executive met Monday to determine how to fill the gap in its leadership and to decide its next steps on the education legislation. There was talk of an assembly being arranged for next week.

Several of the AFN executive members have opposed the bill. But Mr. Atleo was not alone in supporting it.

Grand Chief Doug Kelly of the Sto:lo Tribal Council in British Columbia said Monday that he was "disheartened and deeply troubled" by the government's decision to put the legislation on ice.

The new money that was promised is now unlikely to materialize, Mr. Kelly said. Are the chiefs who opposed the bill "prepared to live with that decision?" he asked. "Are they prepared to say that they are proud of their accomplishment where they cost our schools $1.9-billion in terms of funding?"

The First Nations leaders who spoke against the legislation said the government's biggest mistake was in not taking the opinions of their people into account when it was being drafted.

"We are happy that this thing has been shelved and we are not going to stop until it's totally withdrawn as a bill," Wallace Fox, the Chief of the Onion Lake Cree Nation in Saskatchewan, said Monday. "And what they should have done is do proper consultation."