Eighteen months ago East Timor became the world's newest nation, but the euphoria of the independence celebrations is now long over.

Those who fought for their freedom say day-to-day life in their new state is much harder than they ever imagined. There are security concerns, the economy has contracted sharply as the United Nations staff pull out, and in recent months, drought has ravaged parts of the countryside.

Even so, as ABC correspondent Mark Bowling reports, the peole of East Timor are quietly confident as they look beyond today's tough times to the future.

Mark Bowling: It's hot work inside a small carpentry workshop on Dili's outskirts. There's sawdust in the air and sweat pours from the brow of Azapita De Costa Jimenes.

Azapita is a former member of Falantil, the guerrilla force that fought against Indonesia. Now he's learning how to build boats.

"We need to learn," he says, "and hopefully in one or two years, we will learn a lot more of the skills that are needed".Under the watchful eye of 69 year-old Australian boat builder Barry Wicks, a handful of former Falantil guerrillas are learning a new and useful craft. Power tools have been donated from Australia, which will allow these young men to return to their villages and a somewhat normal civilian life.

Barry Wicks: They become a boat builder, coffin maker or whatever and so it immediately gives them a bit of status in the village, and then skills that they never had before, they can pass on to other people.

Mark Bowling: This is a small success story in a country beset by economic woes. After the 1999 vote for independence and the militia violence that followed, East Timor was left a burnt-out shell.

The United Nations poured vast amounts of money into rebuilding, but the world body's role has wound right back since independence. East Timor began as one of the world's poorest countries and very little has changed.

It's true that along the streets of the capital Dili, most buildings have been repaired, business is thriving and there are more cars, trucks and motorbikes than ever before. But without the UN's presence unemployment is running high.

Crime is rising fast and the newly-formed police force and judicial system are ill-equipped to fight it. There is a reliance still on the generosity of foreign non-government organisations to provide funding and help train.

In schools, there are complications which impede learning. Children are taught in Portugese, a language they don't understand. Most speak the local language Tetun, the second official language, and Indonesian.

The difficulties are illustrated by the situation in one Catholic school in Dili. Most teachers are unpaid volunteers, the school has only a handful of Portugese text books, but it has a store room full of donated English texts from Australia, which sit gathering dust.

A teacher, a nun, explains that texts are still being translated into Tetun. In the meantime, she relies on the blackboard and chalk, when she can get it. The state of the schools is symbolic of the lack of resources East Timor has to start building its new life.

When school children do finish their rudimentary education, the harsh reality is that many will not be able to find jobs. East Timor's fledgling government recognises the importance of not relying on big injections of foreign aid to try and solve its problems.

The government believes gaining skills is a top priority. That's why grassroots projects like teaching former Falantil soldiers how to build boats are so important.

As well as the training involved, each new boat in that project goes to a fishing village that had its crafts stolen or destroyed during the 1999 violence. It's a project which allows fisherman to provide for their own people, a small, but significant step.