Australia and East Timor have signed a treaty to divide up oil and gas reserves under the Timor Sea.

The agreement should bring billions of dollars in fresh cash to the world's newest nation.

East Timor, which is viewed by the United Nations as Asia's poorest country, gained its independence from Indonesia on 20 May.

"The significance of this treaty and memorandum of understanding is the first symbolic and practical demonstration of the relationship between Australia and East Timor," Australia's Prime Minister John Howard said.

"We have reached this agreement after numerous rounds of negotiations... and a few differences from time to time," said East Timor's Prime Minister, Mari Alkatiri.

"We have been getting to know each other quite well, so I'm confident any differences in the future can be resolved," he said.

Past Australian governments have been accused by human rights activists of ignoring Indonesian atrocities in East Timor to protect access to oil in the Timor Sea.

'Extremely fair'

East Timor has been under UN administration since 1999 when a referendum in favour of independence was followed by massacres by anti-separatist militias.

The treaty replaces Australia's previous treaty with Indonesia.

It marks out a joint development zone of 30,000 square kilometres and splits royalties from the zone 90% in East Timor's favour.

Last week, Mr Howard pledged that he would sign the treaty, rejecting criticism of it as biased towards Australia.

He said it was "extremely fair."

Aid offered

International donors have agreed to provide East Timor with $440m (�301m) in aid to help it through its first three years of independence.

East Timor's economy has suffered from centuries of neglect as a Portuguese colony, and decades of conflict with the Indonesia, which invaded in 1975.

But it was the systematic destruction by retreating Indonesian troops and militias after the vote for independence almost three years ago which ensured the transition to nationhood would be extremely difficult.

Per capita gross domestic product is $478, and half the population is earning less than 55 US cents a day, according to the United Nations Development Program.

Very few people have received adequate education, with illiteracy rates running at about 50%.