Dili – East Timor President Xanana Gusmao on Tuesday said the worst was now over and his country was recovering from the outbreak of violence earlier this year which prompted the deployment of international peacekeepers.

"We can all be satisfied that the worst times, the saddest times, are behind us. There are still scattered problems here and there but Dili is slowly returning to normal," Gusmao said in a speech at a ceremony to mark the fledgling nation's declaration of independence day.

The capital and several surrounding areas have been rocked by violence since April and May following the dismissal of some 600 protesting soldiers by the then government of prime minister Mari Alkatiri.

The protest by the soldiers quickly degenerated into street violence involving youth gangs and members of the armed forces and the police. At least 37 people lost their lives in May, prompting the deployment of an Australian-led international peacekeeping force to help reestablish law and order.

Gusmao cited pledges by youth gangs that they would work to put an end to the violence as evidence that peace was returning. He said this year's celebration was tinged with "sadness" because "we are also facing a serious crisis in our country, one that makes our entire people live in fear and despair."

The president said the violence had tarnished the country's reputation. "In just a few months, we all lost control; we all lost the sense of what is good and what is not good, showing that doing only the wrong things seems to be more important.... We have lost respect for the lives of others," he said.

Gusmao also said it appeared that the rule of law had vanished from East Timor. "We cannot go on like this! We have to stop this right now!" he said, calling on the people to work together for peace to return to the country.

November 28 marks the day East Timor unilaterally declared independence from colonial power Portugal in 1975. Indonesia annexed it days later and the country only finally won formal independence in 2002 following a UN-sponsored referendum.