Dr Alkatiri has been widely blamed for East Timor’s descent into chaos and bloodshed over the past two months. Hopes were high in Dili, the capital, today that his departure might provide a chance to close the bitter divisions that have opened between different factions.

He had clung to power since an Australian-led international military force arrived last month, after fighting broke out between armed factions from the police and army. He ignored calls to go as mobs fought each other in the streets and burned hundreds of buildings in Dili.

Only this weekend he won a strong mandate to remain from the ruling Fretilin party, which led East Timor to independence from Indonesia.

Diplomats and international donors had briefed against Dr Alkatiri behind the scenes, and President Gusmão had called on him to go.

Dr Alkatiri was regarded as an effective administrator, but haughty and ill at ease with a people with whom he had had little contact during two decades in exile in Mozambique. He is notably more left-wing and ideological than many of his opponents within Fretilin, some of whom accuse him of trying to run the world’s newest nation like a one-party African state.

He is widely held responsible for mishandling indiscipline within the ranks of the tiny army — an issue that lies at the root of East Timor’s crisis.

When 600 of the 1,400 soldiers complained in March that they were suffering discrimination because they came from the west of the nation, they were sacked at Mr Alkatiri’s behest. They then mutinied and took to the hills as armed rebels. The problem festered until it spread to the ranks of the police and then blew up into street fighting between gangs.

Mr Alkatiri’s credibility was further damaged by his failure to bring fighting under control, and unproven allegations that he ran a secret private army and even a death squad. His former security chief was arrested for illegally importing guns amid claims that hundreds of automatic weapons had been distributed to civilian sympathisers. Both men have denied the claims.

President Gusmão is a long-term rival with a very different style. Unlike Dr Alkatiri, he is widely loved by his people for defying the Indonesian military from prison during their brutal occupation which ended in 1999. Although he has little formal power as President, he has worked hard to try and force Dr Alkatiri out and risked his prestige on the outcome of their power struggle.

It was not clear today who would become the new Prime Minister, although José Ramos-Horta, a former foreign secretary and Gusmão ally, and Ana Pessoa, Mr Ramos-Horta’s former wife, are said to be candidates.

In a terse statement, Dr Alkatiri said he was resigning to comply with President Gusmão request, and added that he assumed “his own share of responsibility for the crisis affecting our country”.

The announcement was welcomed by Australia, which provides the bulk of the 2,700 international force.

Jubilant crowds danced and banged drums on Dili’s waterfront after the announcement before 200 vehicles paraded through the city. Although hated by many Timorese, Dr Alkatiri does have a solid following among Dili’s professional and political class, and his humiliating departure may be the cause of future bitterness. Before resigning he claimed that the chaos was part of an attempted coup and insisted that he had done nothing wrong.

Although fighting, which claimed 21 lives, has eased since the Australian troops arrived, an estimated 150,000 Timorese are still living in improvised refugee camps, too scared to return to their homes.

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