Alkatiri carries grudges and mistrust regarding Indonesia and Australia, but fully understands the need for decent relations with those neighboring countries. Megawati Sukarnoputri, the Indonesian president, had shown a reluctance to recognize East Timor's independence, being much less enthusiastic about it than Abdurrahman Wahid, her predecessor; she has become more receptive and seems to have cordial relations with Alkatiri and Gusmao. An Indonesian ad hoc court trying Indonesian officials implicated in the 1999 East Timor violence resulted in acquittals and light sentences in 2002, angering East Timorese (including Alkatiri) and international supporters, who called for an international tribunal. In February 2003 the UN indicted 32 suspects, including Indonesian military officers, for crimes against humanity during 1999, but there was little hope of their being extradited by Indonesia for trial. The issue of repatriation (back to East Timor) of refugees from West Timor and elsewhere in Indonesia has also caused tension with Indonesia.
In a videotape released late in 2002, Osama bin Laden threatened Australia for helping East Timor to gain independence from predominantly Muslim Indonesia. This, along with the bombings on the Indonesian island of Bali, raised concerns about possible al-Qaeda terrorism in East Timor, but Alkatiri cautioned against "unnecessary alarmism."
It remains to be seen how supportive East Timor will be for ongoing secessionist movements from Indonesia, particularly those of Papua and Aceh. Sharing the island with East Timor, West Timor remains securely Indonesian. This could change in the future.
Negotiations have been ongoing and difficult regarding payment for petroleum reserves (worth an estimated US $7 billion over two decades) in the Timor Gap between East Timor and Australia. As the negotiator for East Timor over the Timor Gap Treaty, Alkatiri has refused to compromise over the maritime boundaries with Australia and has accused Australia of being "unfriendly" about the delineation. He continued to hold a hard line on the negotiations after becoming prime minister. Australia appeared to be ready early in 2003 to ratify agreements on terms that East Timor could accept. It was predicted that petroleum revenues could begin flowing to East Timor as early as 2004. In the meantime, East Timor relied on infusions of emergency foreign aid, and on exports of high quality organically grown coffee, but coffee exports were hit by bad market conditions and drought during 2002. Land ownership ambiguities dating back as far as the 1975 Indonesian invasion have hampered foreign investment.
U.S. companies are involved in Timor Gap petroleum, and import coffee from East Timor. Grover Reese was named the first U.S. ambassador to East Timor in November 2002. Relations with the old colonial power, Portugal and other members of the European Union (EU) have been friendly and a major source of aid. Alkatiri stated that the country's "natural allies are the Portuguese-speaking countries." He traveled to Portugal, Angola, and Mozambique, and offered enthusiastic congratulations to Brazil's new president, Luiz Lula da Silva, who had been a supporter of East Timor's independence movement. The frequent international travel by East Timorese officials was criticized by the country's leading moral authority, Bishop Belo.
East Timor became the 191st member of the UN in September 2002. East Timor hopes to be accepted for membership in the Association of South East Asian Nations (ASEAN) in the future. Alkatiri cited ASEAN member Malaysia, along with Portugal, as a guarantor of East Timor's security following the departure of UN peacekeeping forces.