Andrew Perrin – The former custodians of the Hotel Flamboyan in Baucau, the picturesque seaside town on East Timor's northeast coast, had a lot to learn about hotel management.

Here, during East Timor's darkest days under Indonesian rule, paying guests were treated with disdain by staff dressed in combat fatigues and carrying M-16s and hand grenades. This was an Indonesian military facility that had kept its facade as a hotel to mask its real function as a place to detain, interrogate, torture and sometimes kill Timorese sympathizers of the pro-independence movement.

My first visit to the hotel ended abruptly on New Year's Day, 1998, when I was forcibly escorted from my room at dawn, then driven 10 minutes to an isolated beach and instructed by my "guide" – a member of Indonesia's Elite special forces – to kneel down on the headland that overlooked a tranquil, turquoise bay. He then placed a handgun to my head and asked, "Are you a journalist?"

"No," I lied, keenly aware that foreign journalists were less than welcome in Indonesian East Timor. "I'm a school teacher – on holidays." "We do not believe you," he said. "Leave Baucau – today." He placed the gun back into its holster, yanked me out of the dirt, and then, in a moment of sublime surrealism, looked across to the bay, and said: "Beautiful, no?"

Though sweat – or perhaps tears – stung my eyes and clouded my vision, I nodded in agreement. A crumbling Portuguese fort – a remnant from the 400 years Timor spent under Lisbon's rule – presided over a perfect, white sand beach, complete with palms leaning lazily toward the clear waters. In another time, the scene could have been described as idyllic. But at that moment, East Timor's potential as a holidaymaker's paradise seemed to me minimal, at best.

Flash forward a few years. Two months ago, East Timor became an independent nation, though at a terrible price. In 1999, when Timorese voted to cut their ties with Indonesia, militia proxies of the Indonesian military went on a murderous rampage that left the country in ruins. Few foreigners have been able to forget the scenes of bloodshed and burning; tourists in East Timor are practically nonexistent. But it's time now to forget. The men who caused the destruction have fled, leaving behind a people basking in freedom and peace.

They have also left behind one of the most beautiful countries in Asia. "I was hoping this place would be unsullied by tourists and crass commercialism," says Luca Gansser, an artist who lives in Thailand, and the only tourist I met in East Timor without UN credentials. "And it has proved to be. This is the last unspoiled country in Asia. It's magnificent."

You can explore the highlights of this small, sparsely-populated land in a week, and, with some careful planning, you can do it in style. I did it on a motorbike, though four-wheel drives are more readily available in Dili, the nation's capital, for around $35 a day. Fuel depots are ubiquitous but outside Dili don't expect service stations with a cafe and clean restrooms.

Here fuel is sold from a roadside hut, the gas stored in jerricans, and filtered through rags that hang on goat skulls behind the attendant's counter.

Traveling east, the 60-kilometer journey from Dili to Manututo matches any of the world's great coastal drives. The road hugs the limestone cliffs, swooping down to sea level then rising skyward again, where the view of the iridescent blue waters beckons the bather within. Give in to the urge: the water is cool and clean, and the coral a few feet offshore is stunning.

Farther down the road, villages spring from the shrubbery, most of them decimated in the violence of 1999, but now alive with children seemingly in competition with the Thais for claim to the title "The Land of Smiles." Poor though they may be – indeed, East Timor is now officially the poorest country in Asia – most seem to have generosity in their genes. Boys scamper up palm trees to collect coconuts and offer them gratis to parched visitors traveling along the trail. Then again, it may be a clever sales ploy: once stopped it's not long before you're offered a liter bottle of fermented palm wine for a dollar, with a kick to match that of the sturdy Timorese ponies that transport old men to market.

Beyond Manututo, a hot and dusty seaside town where boys with deflated footballs at their feet dream of being Beckham, the country opens up. From here the road cuts through lush rice paddies, across salt pans and alongside mangrove swamps, traversing desolate country more characteristic of outback Australia than Asia.

Next stop: Baucau. Thanks to an enterprising Catholic bishop who paid off the local militia in 1999, the town was spared much of the death and destruction that befell the rest of the country. His song should be sung. Baucau's old city – built in the shadow of a limestone cliff overlooking the ocean – is home to some of the finest examples of Portuguese architecture in East Timor, including the newly restored and renamed Pousada Baucau, once the infamous Hotel Flamboyan. Now under Timorese management, this grand hotel is the place to enjoy spicy Portuguese-Timorese fusion food and a glass of fine Portuguese wine before retiring for the night.

Reassuringly, the staff now carry corkscrews instead of M-16s. Rooms cost $50 a night, including breakfast – call (61418) 176 003 for reservations. Down the road at the Perola de Timor restaurant a more basic fare is on offer, but the bullet-riddled walls let you know that the good priest's money traveled only so far.

So, too, the strength of his religion. Though 90% of Timorese describe themselves as Catholic – in most cases, staunchly so – the farther east you go, the more likely you are to find locals who take a two-way bet on the afterlife. In the mountainous Lautem regency on the island's eastern edge – an area famed for its intricately-carved traditional houses built on stilts – the pulse of ancestor and spirit worship beats strong beneath the cloak of Catholicism. In cemeteries, graves are marked with crucifixes and decorated with buffalo and goat skulls. A couple will wed in church, but only after a relative has sought ancestral approval by tearing out the beating hearts of sacrificial chickens. "It works well," a portly priest once told me. "The chickens are sometimes served up at the feast after the [church] service."

Chickens are also on the menu at the Pousade de Maubisse, perhaps the finest hotel in East Timor. Rooms are $40 a night midweek, $70 on weekends. There are no phones, so visitors must simply turn up. Perched on a rise in East Timor's central highlands, a four-hour drive north of Dili, the hotel is surrounded on all sides by a jagged mountain range that resembles the Swiss Alps without the altitude. A gracious establishment with wide, marble verandas, luxurious rooms, cultivated rose gardens and crisp, clean air, the hotel was once the favored retreat for Portuguese colonials living in Dili, though it quickly fell into disrepair under the Indonesians, who considered its 360 views of the surrounding countryside perfect for an army observation post.

The hotel has now been restored to its former glory and once again, the "colonials" from Dili – this time UN workers helping to rebuild the country – crowd the dining room on weekends. The view is expansive, the menu limited. The cook has only two strings to her bow: fried beef or fried chicken. "If you are here for two days it's perfect," explained the manager with Basil Fawlty logic. "One day you can have beef. The next you can have chicken."

Either way, a decision has to be made before 5 p.m., to allow the cook time to purchase the meat from the Maubisse market, just down the hill from the hotel in the center of town. There is perhaps no more colorful market in East Timor. Out front, Timorese ponies are parked five to a row. In the back, roosters fight to the death, egged on by craggy mountain men dressed in woolen shawls and wide-brimmed hats. In the market, women sell everything from palm wine and shags of wild tobacco to the beautifully handwoven rugs and blankets known as tais. Don't expect to haggle over prices. The recent introduction of the US dollar as the country's official currency has confused many, and the stall owners prefer for now to keep prices fixed until they can master the true worth of the greenback.

But master it they will. After 450 years of colonial rule – first by Portugal, then Indonesia – the Timorese are adapting quickly to the independence they had craved. "I love this freedom," says a shopkeeper selling wine at the bottom of the hill from the Pousade de Maubisse. "In Indonesia time no one at the hotel drank alcohol. All Muslim soldiers, only here for bad time. Now many tourists come and buy wine from me. They all here for good time. Much better."