Rory Callinan, Dili – The large rock flying past the windscreen raised the alarm. For the previous two days I had travelled with impunity through the Dili suburbs of Becora and Fatuahi, where residents of the East Timorese capital had been engaged in running battles, armed with knifes, bows and arrows, spears and swords.

The fighting was based on regional rivalry, pitting local residents who originate from the eastern provinces of East Timor against those from the west.

West of the capital, in the Gleno district, almost 600 disgruntled soldiers had gathered; deserters from the regular force who claim they are discriminated against because of their western heritage.

The rebel soldiers had fled to the hills above Dili on April 28, after staging a demonstration that was violently suppressed by police and regular soldiers – the majority of whom hailed from the east.

The brutal response to the demonstration prompted a number of heavily armed military police, led by Australian-trained Major Alfredo Reinaldo, to leave the capital; Reinaldo said he did not want to get caught up in the "illegal use" of the army.

The two groups refused to lay down their weapons and holed up outside the capital while calling for the regular army to disarm, and for an investigation to be launched into their grievances.

When I drove up into the hills on Tuesday morning, the youths who the day before had yelled greetings waved their fists from the ridges before bracketing the car with a rain of rocks.

Further down the road, a crowd of men from the eastern faction headed up towards them. Some were brandishing pitchforks, but the weapons of choice were large machetes and slingshots that fired lethal six-inch darts.

Within seconds the road became a melee of running men, yelling, throwing rocks into the bushes and firing their darts.

Regular police from the Dili district arrived and began to walk up the road to try to prevent the fighting, but suddenly the sound of automatic gunfire started and they swiftly fell back. For two hours, the battle continued sporadically, with the regular army moving in from the east across the top of the hills, while the soldiers in Becora pushed upwards. Their enemy, wearing green uniforms and armed with Steyr rifles, was rarely visible.

At 7.30am yesterday, the second breakaway military faction launched a fresh assault – appearing to attack the military headquarters in Tasi-Tolu, about 6km west of the city centre. Army sources said that 10 truckloads of rebel soldiers had launched the attack.

Reinforced by heavily armed rapid intervention police from the west, the rebels had gained the high ground and were peppering the main road west of the headquarters with machinegun fire.

The battle led to the East Timorese military calling in its sole naval patrol boat. The vessel used its .50-calibre machinegun to fire on the hills west of the headquarters but was forced to retreat out to sea after coming under fire from the slopes.

At midday, further shots could be heard on Dili's southern outskirts, and firing was reported near a market on the main road leading south from the capital.