|East Timor's President, Xanana Gusmao right, receives an Akubra hat from Australia's Prime Minister John Howard in Sydney|
"Fair and generous" is how Australian Prime Minister John Howard described the oil and gas deal on Wednesday.
Australian officials said the deal is worth billions of dollars to East Timor, which is one of the world's poorest countries.
The announcement came during a five-day visit to Australia by East Timorese President Xanana Gusmao.
He was accompanied by his foreign minister, Jose Ramos Horta, who said the oil and gas treaty amounted to the "best possible deal" for his tiny country.
The deal came after years of sometimes-acrimonious debate over where in the Timor Sea the border between the two countries lies. Without giving details of the agreement, Prime Minister Howard denied that Australia had treated its smaller neighbor unfairly. "We have always accepted the need to help the people of East Timor, consistent with our obligations to the Australian taxpayer," he said.
A final accord could be signed within the next few weeks. While details have not been made public, officials have been quoted as saying that East Timor agreed to defer its settlement of the seabed boundary dispute for 50 years in exchange for a greater percentage of revenues from one of the largest of the oil and gas fields.
East Timor will also reportedly continue to receive a 90 percent share of revenues from another oil and gas field, worth more than $7.5 billion.
East Timor's journey to independence from Indonesia was chaotic and violent. Attacks by pro-Indonesian militias forced the intervention of international peacekeepers, led by Australia, during a vote for independence in 1999.
The territory finally achieved its independence in May 2002, but was left bankrupt and ruined, and has struggled since to forge a sound economic future.