Xanana Gusmao's first new year's address as president of an independent East Timor encapsulated the fragility of his young nation. At the heart of Mr Gusmao's message was an appeal for peace.

The unity which bound the people of East Timor through the long, bitter independence struggle against Indonesia is fraying. Underlying popular resentment of the new, indigenous political elite erupted into riots in the capital, Dili, late last year.

The bridging of these divisions is now crucial if the goal of a viable, independent nation is to be realised. Unfortunately, this future is far from assured. The problems, and challenges, of a tiny, desperately poor new country are immense. The extreme deprivation and suffering endured during the guerilla war against Indonesia's military fuelled unrealistically high community expectations. Those who believe they should now be rewarded for their sacrifices have discovered that independence, of itself, delivers little. East Timor's per capita income is less than $100 a month. With no industrial base, few agricultural exports, and poor education and training levels, there is little short-term prospect of an economic turn. Unemployment of close to 70 per cent means many former guerilla fighters are now idle and edgy. The benefits of large foreign aid packages are flowing to too few, most visibly the new, political elite.

Theoretically, the job can be done. Sufficient international aid has been pledged to subsidise the national budget until income from oil reserves in the Timor Gap comes on line to balance the budget in 2006. The proper management of those aid funds is now in the hands of an elected national government. However, this government is facing persistent allegations of corruption, including claims that senior officials are demanding cars and cash payments from potential foreign investors. There are also serious community frustrations over the inefficient administration of basic services, and petty corruption within.

Mr Gusmao clearly understands the perilous divisions which are emerging. But the office of president is largely ceremonial. It must now be hoped that Mr Gusmao's substantial moral authority is sufficient to rein in corrupt officials and temper popular expectations.

Australia has already invested a great deal in East Timor, and has its own legitimate security interests in a stable nation to the north. As the United Nations gradually withdraws its staff, Australia's ongoing support will become all the more important.