Dili – East Timor is set to celebrate six years of independence Tuesday, with bursting national pride and dreams for the future contending with the harsh realities of poverty, violence and instability.

As the government puts the finishing touches to the planned Independence Day ceremonies featuring fireworks donated by China, doubts persist about the former Indonesian territory's ability to stand on its own.

The celebrations come just over three months after East Timorese President Jose Ramos-Horta was shot and wounded in rebel attacks that also targeted the prime minister, and amid political infighting that has driven the ruling coalition to the brink of collapse.

The attacks on the country's leadership, which also saw rebel leader Alfredo Reinado killed, raised fears of a return to violence similar to 2006 fighting between police, soldiers and militia that killed at least 37.

But against the worst predictions, calm has prevailed for this week's celebrations. The rebels surrendered last month, and on the streets of East Timor's somnolent capital people are cautiously looking forward to the Independence Day party.

"We're happy and proud about our day of independence but we want calm and for the situation to be normal. We don't want there to be problems. We want peace and calm," said Veronica Amaral, a 24-year-old resident of one of Dili's camps for people displaced by the 2006 unrest.

Around 100,000 people who fled the violence two years ago still live in camps, and although the UN is slowly closing them down some can still be seen near the city's waterfront which has been spruced up for Independence Day.

The camps are a reminder of the price East Timor has paid for its independence, and of the ongoing fragility of the infant state.

Even with the support of a United Nations mission and the presence of thousands of foreign police and soldiers, some analysts warn that the mainly Catholic country's highly factionalised politics could spill onto the streets.

"My reading of the situation is that it's unstable," said Dennis Shoesmith, an East Timor expert at Australia's Charles Darwin University.

"The UN and international stabilisation presence keep it on track (but) if that presence was run down in the next year or so it would quickly deteriorate. And it could deteriorate with the presence there anyway," he said.

Roughly half the population of 600,000 is unemployed and the majority of people live off subsistence farming. The country's baby boom – the average birthrate is 7.7 – is also straining meagre resources.

"The economy for us is not great. Everything is very expensive and it's difficult for those who don't work and the poor. We can't do anything," said Amaral.

Bernardo Almeda, a 35-year-old graduate in civil administration who earns up to three dollars a day selling cigarettes and mobile phone credit on the street, said the government had to provide work for the unemployed.

"It's clear that East Timor in the future will get better, the economy will probably move along well," he said.

But economic growth needs stability, and East Timor has had precious little of that.

The former Portuguese colony was invaded by Indonesia in 1975 and saw more than 200,000 of its people die as a result of violence and hunger that ensued.

The country voted for independence at the ballot box in 1999, but was soon ravaged during a scorched earth campaign by the Indonesian military that saw much of the country razed to the ground and hundreds of thousands seek refuge.

It formally gained independence in 2002 only to be plunged back into chaos when factional tensions within the security forces erupted into open fighting in 2006.

Foreign peacekeepers, who had left after intervening to restore order in 1999, returned to quell the unrest but could not stop hundreds of members of the security forces taking to the hills behind rebel leader Reinado.

With Reinado dead and the last of his rebels having surrendered, analysts say at least one major roadblock to long-term peace has been removed.