Eyewitness
By Francis Markus BBC correspondent in Dili

It is nearly midnight under a cloudy tropical sky with a generous crescent moon.

The crowd seems to number the entire population of this tiny capital, seated on the ground at the same venue a few kilometres west of the city where Pope John Paul II said mass during his 1989 visit to East Timor.

The political independence we'll get soon, but we are worried about the economic independence

Osorio young Timorese

It looks more like a rock concert than anything else.

The atmosphere is becoming steadily more excited.

"It's wonderful, like a dream in the middle of the day," says Branco, a young activist, when asked how he feels about this violence-torn land finally becoming an independent nation.

The crowd begins the evening relatively subdued after a mass in which tribal-costumed procession blends into Roman Catholic liturgy.

A red canvas dragon, dozens of metres long, circles the arena, enacting the creation myth of this land in just one part of a performance blending pageantry, humour and rhythm.

But for the audience, the evening really starts to take off when the VIP guests are introduced.

It sounds as if former President Bill Clinton is going to get the biggest ovation.

The atmosphere has been like at a rock concert

But he is overtaken at the last moment by the cheer given to Indonesian President Megawati Sukarnoputri as she arrives on stage with the man about to be sworn in as East Timor's President, Xanana Gusmao.

The pairing is perhaps a clever diplomatic way of making sure that the leader of the power which Timorese have struggled against so determinedly does not get booed.

It has been a day of gradually mounting expectation in the tiny capital of this land of only 800,000 people.

All over town, children in their Sunday clothes nestle close to their parents, waving small paper flags in the red, yellow and black, triangle and star design of this new state.

Already by late morning a relaxed crowd has gathered on the waterfront opposite the floating hotel, where several of the visiting dignitaries are to be staying.

Unwrapping the future

Some of the preparations for today's celebrations have been rushed through with touch-and-go timing.

At one hotel which is to receive a large contingent of visiting delegations, elegant green and beige sofas are still wrapped in polythene only hours before the guests are due.

The protesters say Australia cut an unfair deal

Scaffolding is still standing in the lobby and the varnish on a chic bar counter has not yet dried.

"It's still beginning," says visiting musician Rao Kyao from Portugal, when asked if the room he is staying in at the hotel is finished.

"I'm waiting for the water department but the refrigerator is working."

Officers of East Timor's new police force in their crisp blue uniforms stand directing the flow of traffic.

It is dominated by white United Nations and government four-wheel drive vehicles, roaring their way down the tree-lined streets.

Three years on after the rampage of destruction by Indonesian troops and militias which followed the pro-independence referendum here, many burned-out buildings are still unrepaired, with sinister black smudges befouling their whitewash, where flame poured out of shattered windows.

Oil deal anger

As the VIP guest arrivals list starts to fill out, a few hundred, mostly young, activists congregate in the broiling early afternoon sun.

They are demonstrating against the Australian Prime Minister, John Howard, who has just arrived in town.

Their banners accuse Australia of robbing the East Timorese in an agreement on sharing the oil wealth of the Timor gap which is due to be signed on Monday.

They call on East Timor's leaders not to sign.

"We 100 per cent don't trust them," shouts Avelino, one of the student leaders, referring to the country's governing politicians.

A young man with an impressively bushy black beard which enhances his radical credentials, he says that he and his friends will not be going to the official celebrations at Taci Tolo.

He spits out one or two more sentences, which I do not quite catch in detail, but are clearly venomously disparaging of the local and foreign VIPs.

Osorio, an earnest and less fiery-looking student type, is keen to be interviewed by visiting reporters.

"I'm very happy because this is the objective which we've been fighting for over 24 years," he says when asked how he feels about independence.

"But our fighting objectives are twofold: one is political independence, the other is economic independence.

"The political independence we'll get soon, but we are worried about the economic independence."