We are in the back of an old Toyota Ute, heading for the hillside village of Ermera. It is only about 100km from the East Timorese capital, Dili, but the road is rough and winding. Wild dogs sleep by the warm road or run out in front of us as we dodge enormous potholes. I can just make out the coconut trees merging into coffee plantations, the bamboo huts becoming stone dwellings, as we climb higher towards the tallest mountain in Timor, Mt Ramalou.

It is dark when we arrive. Gas lanterns light tin sheds that double as market stalls where men gather to drink beer and chat. We are directed to a restaurant where a crowd is gathering to watch a Jackie Chan film. The Timorese are big fans of martial arts – the Falitil freedom fighters began as a martial arts group.

We are greeted like old friends and, with some prompting, strike up a conversation with Peter. Not yet 20, he has recently been made a police officer in the serious crimes unit of Dili, charged with bringing war criminals to justice. But he has trouble talking about his job and looks down as if ashamed when he explains he's trying to be re-assigned.

After dinner we are taken to an abandoned house to bunk for the night. Candle-lit, it is so dark I can barely make out the front steps. But in the following morning's soft light I find a gorgeous house with tiled floors, wooden shutters and a white, Portuguese-style exterior. It is hard to believe someone could leave this behind.

Then I recall a story I heard only a few days earlier. Maria, an East Timorese woman on her way home from Australia, told me of her sister-in-law who had her pregnant belly slashed, and the baby removed and killed in front of her. The stricken mother was left to bleed to death. Maria also lost her first husband. He remains one of the "disappeared" taken by the Indonesian militia but whose bodies are yet to be found. There are many such stories. Locals say Indonesian solders were paid $20 for every scalp. Fear was a part of life.

But today Ermera and its people are on top of the world. Their new President, Xanana Gusmao, has come to visit, touching every hand that is put in front of him, kissing every face. Teenagers hang out on the street till well after dark, free from the curfew that has plagued most of their lives. They whistle to each other, check out the talent. Couples on motorbikes fly the East Timorese flag from the handlebars. And we are moving on.

In Taci Tolu, closer to Dili, we hear that, despite the strict Roman Catholic upbringing, pre-marital sex is common among the young and there are fears of an AIDS epidemic. Safe sex is not considered an option when condoms cost money.

Many teens eschew the old ways. Marriage is not a priority. Some harbour the familiar Western dream of becoming rock stars. I meet an all-girl group, the Tony Pererra Band. The quintet learned music by ear and had been together for just a month before playing the "Big Gig" – the independence celebrations concert in May. They had boyfriends, but "maybe would marry them in three million years". "Before, when Indonesia was here, we couldn't play music, we couldn't do anything," one of the group said. "Now, we have had our Independence Day, we are free, we can do anything, go anywhere and everywhere."

We head for Los Polos, a mountain town in the north-east highlands. On the way, roadside stalls sell everything from rice in little cane baskets to pumpkins, melons and monkeys. And every village has a war memorial, the new flag taking pride of place above it.

The bridge into Los Polos is down, so we walk into town in search of its famed market and run into a gang of teenage boys.

With more than 50 per cent of the population illiterate, it's not surprising they're not at school. Girls, if they're lucky, can go in the afternoons – they must take care of younger siblings while their mothers work in the fields. Boys can go all day, but the trouble is keeping them there.

The boys of Los Polos – a town virtually destroyed by fighting – wear T-shirts emblazoned with images of Che Guevara, Kurt Cobain, Bob Marley, even Osama Bin Laden. Freedom fighters and rebels everywhere are heroes. One of the boys has a guitar and plays us some of his own songs, about a place in his heart for the right girl.

Throughout East Timor even very young boys keep roosters. The kings of the back yard, they herald a new day, make a nice meal or could be a prize fighter. Handfed corn and regularly groomed, they're encouraged to fight other roosters as training for big bouts.

When Timorese lived as tribes in forests, they were gifts from the Mother Earth and Father Star, the first star seen at night. The rooster started the day with its crowing, the buffalo held the tools needed for the day, the dog would show the way through the forest. Once the rooster crowed again, signifying the end of the working day, the dog would lead the way back to the campsite. If the rooster didn't crow in the morning, it was believed danger lay ahead, and the family would stay home.

Now, as refugees who fled in 1999 are forced to return, they discover a severe lack of infrastructure: food shortages, 80 per cent unemployment, regular blackouts, patchy phone lines and destroyed homes occupied by squatters. Land disputes choke the courts.

And as the world's focus shifts from East Timor, Western companies muscle in. The tiny nation's production of rice, corn and soybeans is almost completely organic, but foreign companies are offering inducements to buy fertilisers and genetically modified crops.

The last stands of native sandalwood were taken by the Indonesians when they left in 1999. Re-planting of the burnt-out plains could take years, but who will fund it when even basic health care is scarce? And how do you tell a man with six hungry children he should recycle?

With change comes opportunity and cost. However with careful planning this beautiful country could preserve its cultural heritage and resist fast-food chains and dumped Western products. It is now free to decide.