The government has lifted the suspension of 20,000 non-union teachers, under threat of being sacked, who joined 240,000 colleagues on a national strike.
The action was taken to force implementation of a 150-200 per cent salary rise recommended by the teachers' pay advisory body.
In another U-turn, President Daniel arap Moi directed the education ministry to pay teachers for the 15 days they had been on strike. The police commissioner was also ordered to drop charges against 2,000 striking staff.
The deal was brokered by religious leaders, who appealed to teachers to consider the plight of 550,000 pupils who were to sit for national examinations this year. The strike paralysed 16,000 primary, 3,000 secondary schools and 25 teacher-training colleges, affecting 6.5 million students.
However, even after the teachers had gone back to work, education minister Stephen Kalonzo Musyoka and Ben Sogomo, the teachers' service commission secretary, tried to punish the strikers.
Sogomo had told teachers that they would not be paid for the days when they had been on strike. The commission had also suspended or demoted headteachers, deputies and heads of department who joined the strike.
The dispute arose after the Government went reneged on a deal to give large pay rises to 260,000 teachers in five phases. Out of the education budget of 44 billion shillings (Pounds 471 million), 37 billion was to be spent on teachers' pay.
Musyoka said: "The hiking of teachers' salaries was just politics, and union officials should have known it." The deal was reached a few days before elections and Moi hastily over-ruled the education minister who said the government might be unable to pay.