The continuing turbulence in the Middle East has understandably overshadowed events in our neighbourhood, and that instability looks like being with us for some time to come. The popular protests are inspiring, but the political outcomes are uncertain. This time I shall focus on our neighbour, Timor Leste, where the outlook is rather more optimistic.The situation there was reviewed at the UN Security Council, where it was wisely decided to extend the mandate of its UNMIT mission by 12 months.The head of the mission, Ms Ameerah Haq, delivered a generally positive report on the progress of the new nation, and despite recent statements by some Timorese leaders, including Prime Minister Xanana Gusmao, for the mission to be terminated, the UN decided that it should continue for at least another year.East Timor has been advancing briskly economically, thanks to oil revenues, bolstered by foreign aid, including from Australia. Now more than $7.2 billion is safely invested in US treasury bonds.The budget this year is more than $1 billion - a tenfold increase in little more than five years. A big issue, however, is how much of this wealth is trickling down to the impoverished majority that forms about 75 per cent of the population. It is a problem common to the administration of newly independent countries - the imbalance of wealth that disfigured and discredited colonial rule. In Timor I saw this problem unfolding a decade ago.The Timorese elite aspired to enjoy the affluence of foreigners. As the nation's wealth began to grow, the salaries of all those in government were substantially increased, without any significant improvement in the income of the population at large. Inevitably there is resentment, especially among the youth, which may surface in the elections next year.The UN report recorded progress in the important police and military sectors, but reading between the lines, concerns about their functioning are probably the main reasons for continuing with the UNMIT mission. The granting of full responsibility to police has been slow. There have been concerns about abuses, and the fact that disciplinary charges against some police have yet to be dealt with.As for the military, there are serious allegations of indiscipline and intimidation that suggest not all commanders acknowledge the essential limits of their power.For this reason, it is still important that the Australian Defence Force contribution remains in East Timor. We will continue to hear the protests of military commanders, some not averse to exercising inappropriate authority, but these should be ignored. Unfortunately, former resistance commanders still hunger for the total authority they once wielded in areas then under their control.Some officers are about to serve with UN missions, which should improve their understanding of the limits of military authority.Clearly Australia's position in the eyes of Timorese leaders has changed. We are still important, but the Timorese have succeeded in expanding and diversifying their international contacts, and the relationship that existed after 1999 is no longer so special.A tricky issue is Prime Minister Julia Gillard's proposal to establish a regional refugee centre in Dili. There is strong opposition to the proposal among Timorese leaders and other regional leaders seem less than enthusiastic about it. In the circumstances I have doubts about whether it will ever take shape.