Stephen Fitzpatrick, Dili – Liandro de Jesus's body lay in the morgue at Dili's Guido Valadares hospital for four days before his family was allowed to see it. They claim they were warned that if they pushed the matter, they too, like the star university student so recently lost to them, would be shot.

De Jesus fell last Friday night, after an afternoon of rioting in the East Timorese capital turned mysteriously ferocious and targeted. He had awoken and fled his house at 2am, according to his sister, Magdalena, as the rattle of gunfire across Dili came closer.

"We had been told women should stay in their houses but men would not be safe there," a distraught Magdalena de Jesus says from the chaos of the city's Dom Bosco seminary, where at the height of the panic last weekend thousands of families sheltered.

Many more deserted the city altogether. The UN Office in Timor-Leste estimates that by Sunday 11,000 Dili residents had abandoned their homes, with the number of displaced people dropping to about 6000 by yesterday, although for a large group – perhaps hundreds of families - it is not a simple matter of returning.

Many have no homes to go back to after they were razed by angry mobs inflamed by ethnic tensions, largely drawn on geographic lines: the Lorosae, or easterners, and Loromonu, or westerners.

In this climate, but hours after Friday's mob violence had died down, de Jesus was running through the night for what he hoped would be the safety of the hills ringing the country's dusty port capital. It was a flight the political science student at the city's Universitas Paz (peace, in Portuguese) had lived with the expectation of always having to make. Flight has become, for many East Timorese, a matter of constant preparedness.

For decades Dili has been a site of irregular but extreme violence, first with the Indonesian invasion and occupation of 1975, then with the paroxysm of killings that accompanied the former Portuguese colony's vote for independence in a 1999 referendum.

The latest eruptions, with their contested number of dead – the official toll is four – were, on the face of it, the result of a dispute over discrimination in the military.

A group of 591 Loromonu soldiers were stripped of their badges in February after going on strike claiming mistreatment, including being denied promotion in favour of fellow soldiers from the Lorosae group.

After several days of reasonably well-contained protests, some of these disgruntled troops and a larger group of their supporters gathered outside the main government building on Friday to demand their case be heard. The petitioners, as they are known, weren't insisting on being given back their jobs. They said they only wanted their status clarified.

Their leaders, including former lieutenant Gastao Salsinha, pleaded with a hot-headed mob of supporters to keep calm, but to no avail. Despite the government offer of a commission to investigate the matter, Prime Minister Mari Alkatiri's office was attacked, cars were torched and, in the melee, at least two people were shot dead.

However, that is the story at the surface of things. Below East Timor's uneasy calm, matters rapidly become opaque. A favourite topic of conversation is how to imagine the transition from being a community focused on armed resistance and brutal colonial rule to one based on a free and stable democracy, a nation taking its place at the table of the family of nations.

And even through the wild rumours and conspiracy theories doing the rounds of a country that has barely worked out what kind of democracy it wants to have – let alone what kind of uniformed force it wants protecting that system of government – it is clear that the latest events originate far beyond the claims of a few disgruntled soldiers.

From the hills to which de Jesus tried to flee one can look down across the historic pink mansion being rebuilt as an official residence for whoever succeeds founding President Xanana Gusmao, should he make good on his refusal to stand in elections next year; and on the gaudy faux-traditional thatch-roofed spread of Foreign Minister Jose Ramos Horta, with its monogrammed front gate, fronting the jarringly named Robert F. Kennedy Boulevarde.

One can also gaze across Dili's shanty-town poverty: the dirt-poor spread of a city never rebuilt from its once imagined Hispanic grandeur; and across Santa Cruz cemetery, where more than 300 East Timorese died in 1991 when Indonesian troops opened fire on students protesting the murder of one of their own by Jakarta's brutal security forces.

De Jesus never made it far enough to see any of these things. His body, surrounded by at least 19 empty shells, was discovered not far from home by police captain Angelo Quelo, a friend and neighbour who says there could have been as many as three people shooting at the unarmed student.

"It's clear that he was hit by more than the 19 bullets we found evidence of," Quelo says. "And from the shells we found scattered around the place, he was shot by more than one person, possibly two or three."

Quelo and de Jesus's brother-in-law, Domingos Guterres – also a policeman – were finally allowed to see the body yesterday. All but the head was covered and the family was refused permission to move the death sheets or even touch the body; hospital authorities insisted that was because an autopsy on the 26-year-old was still in progress.

"The doctors thought we wanted to take the corpse, but that's not it at all. If it has to be in the hospital for two or three months, that's fine, so long as an investigation gets to the bottom of why he was shot," Guterres says.

"Why must an unarmed student be the victim of these problems?" asks a cousin, Mariano Suares.

However, if the leader of the disaffected soldiers' group is to be believed, many more besides de Jesus will fall in this latest round of violence. A new civil war, according to Gastao Salsinha, is an entirely possible outcome.

"Those who shot people dead must be tried in an international court," says Salsinha from a hillside hideout, where he and his men are sheltering from former colleagues who are charged with hunting them down "like wild animals". Alkatiri made a televised address calling for the troops to abandon their strongholds in return for guaranteed protection, but Salsinha is dismissive.

"We absolutely don't trust him," the wiry soldier declares. "We need someone [in government] who can take responsibility, someone who is more intelligent than the current administration. We're worried that civil war might be the result, but this could be what has to happen."

Salsinha denies his group is intent on taking government, saying it only wants justice and a competent leadership for East Timor, a demand, he agrees, that could mean a repeat of the UN administration that stepped in to run the country after the 1999 disaster.

"Our thinking at the moment is that we need international help here if the current Government can't handle itself," he says.

Those in government disagree: Ramos Horta and others have insisted last week's events were simply led by political opponents and other outside forces, and a spokesman for Alkatiri describes as "nonsense" the suggestion the Prime Minister and his cabinet be dismissed or replaced.

Beyond that, the official rhetoric is equivocal; other than calls for calm and for the petitioners to give themselves up, no one in the expansive white government building on Rua Martires da Patria (the martyrs of the nation) is prepared to raise a hand against the petitioners, a reluctance many interpret as an unwillingness to uncover the various political aspirations thought to be driving the violence.

"Those people who don't like [Alkatiri] must show their feelings at an election and choose another party. For sure Fretilin [the ruling party and the former political wing of the anti-Indonesian resistance] will win again," spokesman Jose Manuel Guterres says.

Opposition elements agitating for an "illegal and unconstitutional way, which is coup d'etat", have already been identified, he claims. "We just need some proof [of their actions]."

And therein lies the rub. Underlying tensions would be easy enough to inflame, but ethnic violence does not just suddenly appear. East Timor's apparent division into two main groups snarling at each other's throats belies a more complex history of ethnic heritage and family and business connections, and a far simpler one as well: those who opposed the Indonesian occupation and those who didn't.

For independent parliamentarian Leandro Izak – one of those who spent decades in the wilderness fighting Jakarta's brutally efficient machine, but who is also critical of the monolithic nature of Fretilin's grip on government – the latest upheaval is "something [East Timorese] must all learn from and part of the challenge we face, to show the world we can be independent".

In the jungle, he points out, "there was no written law, and nor was there justice. There were just the necessities of fighting for freedom." As a result, he believes the hurdles East Timor faces are as great as they were in 1975, when eight months of effective self-rule following a coup in Lisbon were ended by the Indonesian invasion.

"It may be that the problems can't even be solved in one generation but will take four or five generations," he says from his home high in the hills above Dili. "But the key thing is education, and a shift in the mentality of East Timorese."

One thing is certain: when the UN Security Council meets in New York tomorrow to consider whether and how to renew its advisory role in East Timor – UNOTIL's mandate runs out in less than three weeks – the latest bloody events will feature prominently in considerations.

[Stephen Fitzpatrick is The Australian's Jakarta correspondent.]