Rory Callinan, Dili – Herminio de Oliveira was enjoying a beer at his tiny drinks and cigarette stall near Dili airport when he heard the yelling from the nearby refugee camp. "Fretilin will govern! Fretilin will govern!" came the chant, as scores of youths, supporters of the former ruling party, poured out of the gates and onto the road in the East Timorese capital's western suburbs. "I was frightened," says de Oliveira. "Then a car came, and the youths hit it with many stones."

At the wheel was Joco Carrascalco, whose brother Mario leads the Social Democratic Party (PSD). "They broke his glasses and they injured his wife," says de Oliveira. "I was worried they would start attacking anybody who is not Fretilin, worried they might attack me. My shop is all I have. If they destroy that, I will lose everything."

De Oliveira is one of thousands of East Timorese who have spent the past few weeks anxiously awaiting the announcement of the country's new prime minister. While Dili residents are enthusiastic about a new government, many are concerned about politically driven violence on the scale seen in April and May last year, when 37 people were killed and more than 150,000 fled their homes. "I hope they can control it," says de Oliveira.

On Monday, President Jose Ramos-Horta announced the appointment as prime minister of former resistance fighter Xanana Gusmco, who leads a coalition made up of his own party, the National Congress for the Reconstruction of East Timor (CNRT), the Timorese Social Democratic Association (ASDT), Carrascalco's PSD and the Democratic Party (PD). The coalition holds 37 seats, giving it a substantial majority over Fretilin, which won 21 seats in the June 30 elections.

Fretilin's leaders argue that with more seats than any other party, they should govern.

Ramos-Horta has postponed his decision twice and urged the coalition to include Fretilin representatives for the sake of national stability. But they refuse to do so, and the delay has only increased tensions in the capital.

As it appears less likely that Fretilin will have any role in the new government, it is feared that the party's supporters may try to use violence to destabilize the country. Immediately after Ramos-Horta's announcement, violence broke out in the capital of Dili; later that evening angry pro-Fretilin protesters set fire to Dili's customs house as Australian peacekeeping troops moved to restore order.

Says Dr. Christopher Samson, who heads a Dili-based anti-corruption NGO: "There will be those people who are uneducated who will try to take the law into their own hands. They want to threaten the nation and its stability. But I believe it will not be large, because the majority of the people will not support it." Samson regularly receives death threats for his work fighting corruption. "If there are some civilians with weapons, then that will lead to loss of life," he says.

One source of tension comes from the large numbers of Fretilin-supporting easterners who have taken up residence in refugee camps in the capital. On Sunday, young men from one inner-city refugee camp blocked the road outside Dili's new Hotel Timor, where party leaders regularly hold meetings. Chanting "Fretilin! Fretilin!" they climbed trees and hoisted a red-and-white banner across the road. The banner featured a snake and a cross, with the slogan, in the local Tetum language: "Timor needs a prime minister who is intelligent, not someone who is like big brother." Many of the youths appeared to be drunk, and were urged on by agitators in the crowd.

Fretilin spokesman and former minister Jose Texeira believes the announcement could spark minor trouble but says, "There is no way there is any campaign for any organized violence. We are actively involved in ensuring that people accept the decision."

But last week the party's secretary-general, former prime minister Mari Alkatiri, made a clear link between the stability of the country and Fretilin's having a role in the ruling coalition. "Fretilin firmly believes that a government of grand inclusion, which includes members of all political parties which have seats in the national parliament, will bring stability to the country," he told journalists. "If there is no stability, then no government will be able to function effectively."

Alkatiri's party, elected to government in 2002, has a dubious reputation. Former interior minister Rogerio Lobato is serving a seven-and-a-half-year jail term for arming a hit squad in the lead-up to last year's violence. Former resistance fighter Colonel Vincente de Conceicco Railos, the man who blew the whistle on Lobato's plot, this week told Time that he knows of at least 28 weapons still in the hands of a militant pro-Fretilin group that has threatened to conduct assassinations if Fretilin is excluded from government. "They want to cause instability.

They go look for political leaders to assassinate. They have the experience from the resistance," says Railos, surrounded by bodyguards as he sits on the porch of his home. "I have told the President [Ramos-Horta] this information, but they still have not done anything about it. The weapons are still there."

Railos points to other worrying developments, including a build-up of weapons in Balibo and rumors that a large quantity of drugs has been brought from West Timor, a province of Indonesia, allegedly to embolden and energize refugee-camp youths. But the colonel's claims have been dismissed by the Indian head of the UN Mission in East Timor, Atul Khare, who believes Ramos-Horta's eventual decision will provoke only minor incidents. "What I do believe is that with our presence, isolated and sporadic incidents can be prevented from turning into a major conflagration of violence of the type which occurred last year," he says. "Police cannot prevent each and every incident. Police cannot stop people from throwing stones."

Khare, who controls a force of around 1,600 international police, sees no evidence that any of the political parties have been inciting violence. "It has had no connection so far," he says. "Violence is an accompaniment of the unexpressed frustration of desires of several people who find themselves disenfranchised and disempowered, and feel that they have not yet received the dividend that should have gone to them from the process of restoration of national independence. What I can believe is that the political leaders have been assisting and will continue to assist in keeping their supporters in control."

Dili residents who have to drive by the refugee camp at the airport might disagree. Minutes after the new Parliament elected Coalition member and PD head Fernando Lasama de Araujo as its president, youths again swarmed out of the camp and began throwing stones at vehicles and yelling pro-Fretilin slogans. UN police and more than 20 Australian soldiers rushed to the camp to force the protestors back inside, where they screamed obscenities. Similar outbursts took place near the Fretilin headquarters in Comoro.

Despite Khare's claims, UN police, who occupy the front line in the fight to stop the violence, suspect a link between the violence and political parties. Head of the Comoro police post Joel Doria says his men have received numerous allegations of a connection between Fretilin and the simmering violence. During the election campaign, he says, police were arresting pro-Fretilin troublemakers and finding $30 to $100 cash in their pockets – improbably large sums for jobless refugees. "We request them to stay in the camp, but every time there is a political event they go out into the street and create problems," he says. "We have the information but we can't make the connection with evidence."

Doria, a veteran police officer who is more used to hunting extremists in his native Philippines than political agitators in East Timor, brings up on his computer screen photos of regular offenders and rock-throwers from the camps. "See, here they are causing problems on the streets of Dili. Then here are the same ones gathering at the Fretilin headquarters in Comoro," he says, switching to photos taken on the same day in front of the Fretilin building. "Why are they there? What is there for them?" Doria notes that over the past week, loud music has been blaring out of the Fretilin HQ at all hours. "That gives them an excuse to have a lot of people there. They are pretending to have a party. But really they are waiting to cause problems."

Many locals agree with his assessment. Street vendors say they've learned to expect trouble when they see local youths using their cell phones. "They have up to $50 credit on their phone cards. How can they afford it?" asks one.

PSD head Mario Carrascalco says his party has the names of three individuals, linked to Fretilin, who they believe order the refugees to cause trouble. "We have given their names to police. They are receiving money and drinks from senior people related to Fretilin leaders," says Carrascalco, whose car was attacked by stone-throwing Fretilin supporters near the airport refugee camp on July 30. "But to this point we have heard nothing about them being investigated." He has received numerous threats of violence. "Today, for instance, I got a short message saying they are going to burn Dili Hospital if Fretilin does not govern," he says. "That is terrorism." Carrascalco has concerns that UN and local security officials will not be proactive enough to prevent injuries: "The police handle it, but only after things have started. They only come after the victims are already there."

Out on the streets, Dili residents like de Oliveira are nervous. "I have a friend who overhears a group of Fretilin supporters at the refugee camp near the city having a meeting," he says. "They said they had a plan: that when the decision is made, they will burn all the shops in Dili."