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The reference describes an 'oscillating engine' and a tank of 'liquid propellant'. Given the scale this seems likely to be a small pneumatic motor, driven by an evaporating liquid propellant (like an aerosol propellant), rather than a gasoline engine. The term 'oscillating engine' may refer to an arrangement like an oscillating cylinder steam engine, which would be feasible to build at the required scale. --Cooperised (talk) 11:56, 20 December 2012 (UTC)
Seems that Cooperised's guess about the engine were spot on (I also think that such a small gasoline engine can not be built or work in such a miniature size, for more than a reason). I found the official CIA statement here:  "Crafted by a watchmaker, Insectothopter had a miniature fluidic oscillator to propel the wings up and down at the proper rate to provide both lift and thrust. A small amount of propellant produced gas to drive the oscillator, and extra thrust came from the excess gas vented out the rear." I am going to correct the main article page subsequently.