As our van wound its way into the mountains of East Timor this spring, past wild arabica coffee bushes and traditional thatched-roof spirit houses perched on stilts, my companion, a Timorese friend named Chico Tilman, peered intently at the truckloads of soldiers passing us on their way to Dili, the capital. "Why are they all going to Dili?" he asked, staring at the military men in tattered shirts. We both had heard rumors of a potential clash among soldiers, but until now we had seen no troops.

Chico watched the soldiers as I looked out the window at a pastel-colored building encircled by peaks, the former residence of a Portuguese governor. Then he smiled, a grin concealing fear. "We'll get it okay, it won't be a problem," he said. "We are all Timorese."

In recent years, East Timor, the world's youngest nation, indeed seemed to be getting it. The country had a history of pain. After Portugal granted the colony freedom in 1975, Indonesia invaded, and over the next 25 years oversaw a brutal occupation. After East Timor voted for independence in 1999, the Indonesian military delivered a final blow, burning Timorese towns to the ground.

Despite this awful birth, much of the world has viewed East Timor as a success story since 1999. After three years of U.N. rule, Timorese took over their government in 2002. A year later, President Xanana Gusmao told the Associated Press that the reconstruction could be a valuable lesson for conflict-torn nations such as Iraq. Development experts touted East Timor's supposedly peaceful politics, civil society and foundations of a vibrant economy. "The country has made remarkable progress in laying the foundations for a functioning civil society," the United Nations reported. And the World Bank enthused: "The future thus looks fairly optimistic."

When I visited this spring, I understood why foreigners showered the country with praise. The nation appeared blissful, a far cry from other reconstruction projects such as Iraq. At night, I sat on the beach in Dili, gorging myself on fresh grilled fish and Portuguese wine as the sun set over the quiet city. One afternoon, I visited a Timorese organization promoting ecotourism -- certainly not a topic on people's minds in Baghdad or Pristina.

In recent weeks, though, the success story has evaporated. The clash we feared that day in March finally ignited, and now gangs of armed men affiliated with rival military and police roam Dili, looting and burning shops. In the saddest recent incident, someone attacked the home of a government minister, burning five children to death. Though Australia has offered East Timor 2,000 troops and other military personnel, the peacekeepers who have arrived so far have been unable to restore calm.

The bloodshed seems sudden, but its causes have been building for years beneath the facade of peace. Since returning to East Timor after 1999, the country's political leaders, many of whom spent the Indonesian period in exile, built few bonds with average Timorese, who lived through Indonesian atrocities and sometimes resented the relatively well-off returning exiles. Prime Minister Mari Alkatiri, one of the returned exiles, seemed to shun interactions with the public, making decisions by fiat as he tried to consolidate power.

When it came time to choose a national language, the exiles were so insular that rather than picking Tetum, the local language, or Indonesian, which most Timorese speak, they chose Portuguese, an elite language that few average Timorese comprehend. Foreign consultants in Dili reported comical meetings on aid policy in which no one in the room could understand the conversation because it was required to be in Portuguese.

Alkatiri and other Timorese leaders also have relied on their personalities to manage political problems, rather than building institutions. This worked for a while, partly because East Timor is so small, with a population of 1.1 million. During my March visit to Dili, I heard rumors of a possible fight among soldiers; at the time, the president visited many military officials to ask them to cool off. But that peace relied on Gusmao's force of personality, since the government did not address the soldiers' core demands -- improved working conditions and an army that did not discriminate against people from the western part of the country.

The Timorese leaders' immense personal power also appears to have bred corruption -- an even more inviting temptation since the recent signing of a deal to explore East Timor's offshore gas fields that could be worth $20 billion. Stories of alleged corruption infuriate average Timorese, including soldiers, most of whom are struggling to survive in the poorest nation in Asia and do not understand foreign reports of the nation's success. East Timor's gross domestic product hovers around $400 a person, and the country has one of the highest birth rates in the world.

Outside Dili, I stopped in villages where children with straw-like hair and oversized bellies, classic signs of malnutrition, were selling scrawny vegetables. Social services and infrastructure have not recovered from the destruction in 1999, either. Even in Dili, which is wealthier than the rest of East Timor, I walked through one school where students attended class inside the gutted ruins of buildings. Outside, a basketball court had everything a player needed to hoop it up -- except rims, backboards or nets.

Meanwhile, priority has gone to East Timor's international relations rather than the looming catastrophes within Timorese society. An international commission established to investigate the violence in East Timor from 1975 to 1999 recommended a comprehensive war crimes tribunal, a view supported by Amnesty International and local human rights groups. But when I visited Joao Freitas de Camara, a senior Timorese official and former independence fighter who spent years in Indonesian prisons, he rejected calls for a tribunal. He told me that East Timor needs to get along with Indonesia and focus on its economy -- a position, he said, that East Timor's foreign friends may not understand. "We know the Indonesians well and we have to deal with them," he said.

Timor's reconstruction also unwittingly exacerbated tensions within the Timorese military and police. During the reconstruction effort, the United Nations recruited much of the new Timorese police force from Timorese who served as cops during the Indonesian period. But the army remained dominated by men from the east who were guerrillas during the Indonesian time, and thus hated the people now serving as police.

And although many Americans who desire a pullout from Iraq may not want to hear it, East Timor's future also has been jeopardized because Australia, the major foreign power, withdrew too quickly. Australian troops, who helped restore peace in 1999, had been stationed in a region of Timor that is home to many of the men now involved in the Dili violence, said Damien Kingsbury, an Australian expert on East Timor. But last year, with East Timor deemed a success, most Australian soldiers pulled out.

This spring, all these mistakes combined to trigger the violence. In March, Alkatiri sacked soldiers who continued to complain about discrimination and poor working conditions. And when possible challengers emerged to criticize the prime minister inside his party, he changed the rules on voting, so polling was done by a show of hands. With party members fearful of openly challenging Alkatiri, who also had passed a law making defamation a crime punishable by long prison terms, he crushed any potential rivals.

The dismissed soldiers, most from the west, held a demonstration in Dili in April, but the government gave no ground. In late April, troops loyal to the leadership shot dead at least four of the protesters, while the rebel soldiers gathered a larger force in the hills outside Dili.

But the international community continued to promote East Timor as a success story. Only weeks ago, a meeting on the country at the United Nations resulted in various ambassadors heaping praise on themselves for East Timor's reconstruction. World Bank President Paul D. Wolfowitz also chimed in, hailing "the considerable progress the Timorese people have achieved . . . the bustling markets, the rebuilt schools, the functioning government."

Finally, in the past two weeks the frustrations exploded, with rebel soldiers from the west and police fighting with soldiers loyal to the government. In one tragedy, loyalist soldiers killed 10 unarmed policemen. As the violence spiraled into uncontrolled mob attacks, East Timor declared emergency law, but not fast enough to prevent predictions of all-out civil war.

For many average Timorese, the turmoil has recalled the Indonesian occupation and aftermath. About 100,000 people already have fled their homes. Foreign observers estimate that nearly 30 people have died in this round of violence, and with the Australians largely gone there was no force capable of disarming the fighters until the new peacekeepers arrived. Worried, I tried to call Chico's cellphone last week. Digging through piles of photographs of Timorese beaches and optimistic reports of East Timor's future, I found the number. When I tried it, the phone sputtered. Then it, too, died.

Joshua Kurlantzick is a visiting scholar at the Carnegie Endowment for International Peace and special correspondent for the New Republic.