Tom Allard – Rosinha Erica Nunes is the kind of young woman that East Timor needs to cherish if it is to emerge as a viable country. A final-year high school student from a neighbourhood where few bother finishing their secondary education, she had the marks, and the ambition, to go to university next year.

But, like the fate of her nation, her health hangs precariously in the balance. "She was always laughing. We always had such good, funny conversations," says her mother, Rosalia Lotu, holding her daughter's hand in ward B at Dili's main hospital. "Now, there is only sadness."

Rosinha was mowed down by armed assailants in the Dili suburb of Perumnas last weekend. Fleeing the attackers, she was shot in the back. The operation to remove the bullets was not successful.

Fragments remain in her body, are causing her excruciating pain and there's the risk her wounds will become infected.

It was only hours after she was shot at Perumnas that Australia's military commander in East Timor, Brigadier Michael Slater, emerged to spruik a "good news story".

"Things are going very well," he said. "We have got just over 2000 troops on the ground and they are out there providing security, enabling people like those you see around you to start laughing and having a bit of a relax for the first time in several days."

To be fair to Slater, he was probably unaware of Rosinha's ordeal. But the contrast between his statement and Rosinha's agony highlights an enduring feature of the crisis.

While citizens of Dili cower in refugee camps and scrap for food and shelter, the military chiefs and, most of all, the country's political elite seem disconnected from the reality of the situation, and incapable of halting the mayhem.

Take the bizarre political machinations that unfolded this week. The violence first erupted in Dili in late April, when loyalist soldiers opened fire on a rally by some of their disaffected former comrades protesting at their ousting by the Prime Minister, Mari Alkatiri.

Yet, it was only on Monday of this week that the country's Council of State convened for the first time. The talks continued for 21/2 days before the country's President and the hero of the independence movement, Xanana Gusmao, finally emerged to declare to the nation he had taken "sole responsibility" for East Timor's defence and security, including the Australian-led international force deployed to restore peace.

It seemed to be a circuit-breaker of sorts, at least until Alkatiri emerged the next morning to contradict the President and insist he remained in control, muttering darkly about unnamed forces attempting a coup d'etat. Slater, too, took issue with Gusmao – Australian troops would take orders only from him, he assured the media.

"The thing with East Timor's politics is no one says what they really mean. It's not a place of explicit understandings," one Western diplomat said this week. "This is a country dominated by personalities and their relationships are complex. The two biggest personalities are Gusmao and Alkatiri and that relationship is breaking down."

Many would argue that it is government itself that has broken down.

Underneath, the two main leaders are a coterie of ambitious politicians building their own personal fiefdoms and networks of influence, pulling in different directions.

Certainly, East Timor's Government is destined to remain unstable, at least until elections due next year, and that has worrying implications for its people, desperate for order and a modicum of economic development.

East Timor is poorer now than when the Indonesians left in 1999. More than half of the aid it received on gaining independence was spent on consultancy fees and salaries to foreign advisers, with few tangible results.

There is a lucrative stream of revenues to come from the nearby oil and gas fields, but that won't have an impact for several years.

East Timor also has one of the highest birthrates in the world, and unemployment rates approaching 50 per cent. And it is from the ranks of the jobless and destitute that the ethnic gangs draw their young recruits.

Some of the gangs are proxies for outside forces. The Australians don't know who these shadowy puppet-masters are, but believe they are getting closer to finding out. Elements of the security services and politicians are the likely culprits and, inevitably, there is speculation that Indonesian intelligence could be stoking the flames.

Perhaps the most alarming consequence of the crisis in East Timor is that the ethnic tensions between people from the eastern and western regions of the country, that have been beneath the surface for decades, have been so dramatically amplified, many fear permanently.

It is a development that seems to have been underestimated by Australia's military commanders. They point out that they have had success in stopping the factions of East Timor's security services from attacking each other, and have enticed 130 renegade police officers to surrender, hand in their weapons and return to barracks.

But, as this week so emphatically proved, the fury of these ethnic gangs – armed with homemade weapons, machetes that can be bought at any hardware store, a can of petrol and a lighter – can wreak enough havoc to paralyse Dili and leave 70,000 of its citizens in refugee camps, too afraid to return home.

Using spotters, mobile phones and primitive decoy techniques, the ethnic gangs have launched hit and run arson and machete attacks across Dili almost at will.

Contrary to the expectations of some, the mere presence of the Australian soldiers, their high-tech weapons, their armoured personnel carriers and their Black Hawk helicopters have done little to deter the gangs.

In many ways, it has emboldened them. With their restrictive rules of engagement, the Australian troops initially did not make arrests or confiscate weapons. That began to change as the week progressed, but controlling the hoodlums is police work, not a military operation.

The troops will arrive at the scene of the latest flare-up and disperse the mob, take some weapons and maybe arrest one or two people, usually letting them go a few hours later, having no facilities to detain them or criminal justice system to process them.

For those Dili residents who remain in their homes and aren't directly involved in the violence, the breakdown in law and order means they are arming themselves for protection, adding to the volatile mix.

Many are so terrified of retribution, they are unprepared to identify their attackers by name and only point in the general direction of their assailants. There's also a language barrier. Few Timorese speak English, and fewer of the foreign forces speak the main local language, Tetum.

A common refrain heard this week was: "Why aren't the Australians defending us?"

It is all very frustrating for the soldiers. "I am getting jack of this," one infantryman remarked, as he stood sentry waiting for another building to burn to the ground. So, too, are the people of East Timor.