Mark Dodd – More than 70,000 East Timorese are still living in emergency shelter as a result of ongoing gang violence that flared earlier in the year and left 37 people dead.

A UN survey has found at least 2000 homes in the capital Dili were destroyed in the violence, which started over claims of ethnic discrimination in the country's armed forces.

The UN's acting head of mission, Finn Reske-Nielsen, has warned of a looming humanitarian crisis in the country with the expected onset of annual monsoon rains. Four refugee camps housing thousands of displaced Timorese faced severe flooding and new emergency accommodation was being sought, he said.

His comments came as a mob descended on a UN food store, hurling rocks at the building before storming inside and carrying off bags of rice.

Australian peacekeepers deployed in Dili also came under attack by gang members wielding machetes and firing steel darts. No soldiers were hurt, but one of the peacekeepers fired a single shot as a warning.

Commander of Australian forces in Dili Brigadier Malcolm Rerden denied reports linking the soldiers with the death of an East Timorese man, the result of continuing gang violence.

But Australian troops would not hesitate to use deadly fire. "The international security forces will use necessary force to stop the violence, and this includes the capability for lethal force if they are attacked with lethal weapons," he said. "If the gangs think they can use grenades, or pistols or rifles, they are wrong. Make no mistake – if someone shoots at us, we will shoot back."

Renegade army commander Alfredo Reinado has held talks with the country's military chief as part of ongoing negotiations with the Government. The former military police commander met Brigadier-General Taur Matan Ruak on Thursday.

About 820 Australians are deployed in Dili with 120 New Zealanders as part of an Anzac battle group to help keep the peace in the troubled nation.

A shipment of emergency clothing, food and wheelchairs intended for impoverished East Timor residents was unloaded from a port in Dili yesterday, three years after being sent by Australian donors.

A statement issued by the Government in Dili apologised for the hold-up, blamed on excessive bureaucracy. "It is a totally unacceptable delay," said Prime Minister Jose Ramos Horta, adding many of the goods had deteriorated.

[Additional reporting by Associated Press.]