Key Points:

In the hills beyond Dili, Australian special forces are hunting down rebel East Timorese soldiers implicated in this week's shooting of President Jose Ramos Horta. The armed rebels' freedom continues to poise the infant nation on a razor's edge.

In the capital, yet another inquiry is trying to peel back layers of rumour and allegation to uncover the truth behind the attack on Ramos Horta and the ambushing of Prime Minister Xanana Gusmao.

Neither job will be easy. While a number of rebels were reported to have surrendered in the wake of East Timor's latest crisis, others have slipped back into their mountain stronghold, warning that they are ready to fight.

And in the murky, shifting world of Timorese politics, investigators have again been handed accusations of clandestine payments and support for the rebels in a continuing struggle for power. Among these are - disputed - claims that former Prime Minister Mari Alkatiri's Fretilin party has been working to undermine stability and force new elections.

Not even the full details of Monday's pre-dawn attacks, let alone their real motivation, are agreed, although police believe they know the identities of those in the two hit squads.

Authorities also face the emergence of slain rebel leader Major Alfredo Reinado as a martyr. The Australian-trained former military police commander, charged with eight counts of murder following the violent crisis of 2006, was buried on Thursday to an outpouring of grief by hundreds of mourners and cries of "viva Alfredo".

It is, as always, a heady and dangerously volatile brew. While the shooting of Ramos Horta and the death of Reinado have not yet triggered a new wave of street violence, a state of emergency and night-time curfew remain in place.

Claims and counter-claims of political involvement in the shootings will inevitably complicate the task of defusing tensions and restoring stability. There are also serious questions relating to the failure of intelligence, the ability of carloads of armed men to penetrate Dili and attack Ramos Horta's home, and the response by security forces.

Finding answers will be critical. Violence, exacerbated by poverty and unemployment, is never far beneath the surface in East Timor. It is now also the rainy season, fuelling fears that refugee camps still housing about 100,000 people - a tenth of the population - could become powder kegs.

But the attacks on Ramos Horta and Gusmao have forced the Government's hand on the rebels, requiring an urgent and final solution to one of the most dangerous threats to peace and security in East Timor. The risk is that dealing with one problem could inflame others.

The genesis of the crisis lies in the turmoil that followed independence, when the nation began building new political and security institutions. Fretilin, the political arm of the former Falantil guerilla army that fought Indonesian occupation for 25 years, became the major party. But its two best-known leaders, Nobel Peace laureate Ramos Horta and Gusmao, split from the party, opening deep and bitter divisions.

These rent East Timor apart in the crisis that followed the creation of a new Army. There were not enough places for all those who had fought with Falantil and resentments grew.

Soldiers from the western regions complained of discrimination by a leadership mainly from the east. Led by Lieutenant Gastao Salsinha, about 600 deserted - to become known as the Petitioners - followed later by Reinado and a military police detachment.

Mishandling of the defection, fuelled by political manipulation, led to gunfights between soldiers, rebels and police, and street violence that killed more than 30 people, destroyed hundreds of homes and businesses, and pushed tens of thousands into refugee camps.

Australian and New Zealand troops sent to restore calm could have pursued Reinado and his followers. But the East Timorese Government preferred negotiation and instructed them to leave the rebels alone while they tried persuasion.

The political fallout was as significant. Alkatiri fell, to be replaced as Prime Minister by Gusmao. Ramos Horta, formerly Foreign Minister, became President. Former Interior Minister Rogerio Lobato was jailed for more than seven years for arming a militia against opponents of Alkatiri.

Significant progress followed. Changes were made in the Army. The police force is being rebuilt under United Nations direction, with three stations in Dili handed back to local control this month. Political violence ended and, even though street violence remains a daily occurrence, serious crimes such as rape, abduction and murder have been almost halved.

But the brittle peace ended with gunfire on Monday.

As best as can be determined from conflicting reports, the attacks on Ramos Horta and Gusmao came without warning or clear motivation. They were carried out by two squads - one led by Reinado on Ramos Horta's home in Dili, the other allegedly led by Salinha on Gusmao.

Foreign Minister Zacarias da Costa confirmed in Darwin that Salinha had been recognised by security forces during the attack, although the former lieutenant has since vehemently denied involvement in a telephone interview with an Australian newspaper.

Protection of the two leaders was not the responsibility of either UN police or soldiers of the International Stabilisation Force, which includes about 180 New Zealand troops. At the insistence of the Timorese, Ramos Horta and Gusmao were guarded by local soldiers and police.

Before dawn on Monday, Ramos Horta went for his daily walk with a bodyguard. While he was out, Reinado, his bodyguard Leopoldino and several other rebels broke into the compound and searched for the president.

Soldiers about to end their shift opened fire, killing Reinado and Leopoldino. Return fire seriously injured one soldier. Outside, Ramos Horta ran back towards his home and was shot up to three times in the torso. He remains in a serious condition in a Darwin hospital.

Ramos Horta's brother Arsenio claims UN police blockaded the road and would not allow anyone through for more than 20 minutes, leaving him to cradle the bleeding President until help finally arrived. The UN denies this and says police arrived within minutes.

In the hills above the capital, Gusmao was told of the shooting and warned to stay home. Instead, he and a bodyguard raced to their car and headed for Dili.

Shortly afterwards rebels broke into the house, terrifying Gusmao's family, found the Prime Minister gone, and signalled to accomplices lying in wait on the winding road to Dili. They shot out the wheels of his car, but Gusmao raced past, abandoning the vehicle further down the road and running into the bush to call for help.

What the rebels' intention was remains unknown. At first authorities believed the attacks were attempted assassinations ahead of a coup. But, especially with shots fired at Gusmao's tyres rather than at the Prime Minister, opinion has shifted towards attempted kidnapping.

Why Reinado and his accomplices should attempt either is a mystery.

Reinado and Ramos Horta had known each other for years, and it was at the President's insistence that the rebels had remained free, armed and unmolested. The two had been negotiating a solution to the continuing standoff, reportedly amicably.

But there were apparently some underlying tensions between Reinado and Gusmao, and further disagreements on how the issue should be negotiated: the Government wanted to treat Reinado and the Petitioners separately; Reinado insisted they be dealt with together.

There are reports that Reinado had been infuriated when Gusmao negotiated a separate deal with a group of Petitioners. The Australian reported yesterday that Reinado had produced a DVD attacking Gusmao as a liar and warning him to be careful.

There are more arcane theories, suggesting that Reinado's frustration and growing disillusionment with Ramos Horta and Gusmao had pushed him towards Alkatiri and Fretilin, formerly bitter enemies.

Fretilin has never accepted the result of the elections that put Ramos Horta and Gusmao in power, and refers to their administration as the "de facto" Government. Fretilin wants new elections, and has used Reinado's attacks to slam the Government, demand the resignation of key ministers and call for a new poll.

Claims have been circulated that Fretilin used Reinado's anger - and a hefty bribe - to attack the two leaders in a bid to destabilise the nation, force new elections and install a Fretilin administration.

Fretilin has passionately denied the allegations and claims in return that its political enemies are using the new crisis to attack the party.

Clearing the air in East Timor will not be easy.