Two years after Macedonia, the small, southernmost territory of the former Yugoslavia, was nearly torn apart by ethnic warfare, there has been considerable progress toward reconciliation and restoring stability. But many doubts remain about Macedonia's future.

The good news is that Macedonia is still intact and relatively peaceful. Nine months ago, a reformist party won national elections and formed a coalition with an ethnic Albanian party led by former insurgents. The security situation has improved so much that NATO peacekeepers have withdrawn; their place has been taken by just a handful of peacekeepers from the European Union.

Sheila Frumin, the Canadian head of the National Democratic Institute - which promotes inter-ethnic cooperation - says compared to a year ago there has been a huge improvement in the political situation in Macedonia.

Ms. Frumin says the new government is making slow progress in implementing a framework agreement that ended fighting between Macedonians and ethnic Albanians in the country.

"Albanian members of parliament [now] have the right to use the Albanian language in certain conditions," she said. "Personal documents such as ID cards and passports are now bilingual. And, so those are big steps."

Albanians comprise from 20 to 30 percent of Macedonia's population.

Ed Joseph, an American researcher who is ending an assignment in Skopje for the International Crisis Group, a Brussels-based research organization, is guardedly optimistic that Macedonia's Albanians - if they are given more rights and treated with respect - could eventually profess allegiance to a Macedonian state.

"There is a potential for Albanians to see this country - as they did before [under Tito] - as their state," he said. "But there is no guarantee."

But Mr. Joseph also sees worrying signs of ethnic polarization.

"Here, for example, in Macedonia one of the most troubling things is that it is the young generation that is showing greater hatred towards the other ethnic group than the older generation," he said. "The polarization is greater among the young."

Macedonia's economy is not performing well. Unemployment exceeds 20 percent and there are few prospects of good jobs for young people. As in neighboring Serbia and Montenegro, many highly-educated people want to leave.

Even though the reformers who came to power last September have put anti-corruption measures on the agenda, Sheila Frumin of the National Democratic Institute, says corruption is still a huge problem. She outlines the typical elements of corruption in Macedonia.

"Some of the main ones involve the privatization of state institutions and assets whereby state officials profited personally from the sale of public assets," she said. "That's one of the big ones. Second, smuggling involving illegal arms, illegal drugs, human trafficking, and tobacco."

The big question for Macedonians is whether there will be renewed ethnic violence and even another insurgency. Few people - average citizens, policy makers and experts - are prepared to answer with a categorical no. Thus, foreign investors tend to stay away and people on both sides of the ethnic divide remain unsettled.