Mr Ramos-Horta was critically injured in the attack on his home
For many East Timorese, the dramatic events in the capital, Dili, on Monday came as a surprise.
The small half-island Pacific nation had been relatively calm since violence shook Dili between April and June in 2006.
It was the worst outbreak of violence since the country gained its independence six years ago.
Rebel fighter Alfredo Reinado led a group of 600 soldiers who had been dismissed from the national army.
Fighting between rival factions followed, in which 37 East Timorese were killed and more than 100,000 fled their homes. Many still remain in refugee camps around the city.
In recent weeks, the government had been engaging in dialogue with Reinado and his small group of armed supporters, who had been hiding out in the heavily-wooded Timorese mountains.
Prime Minister Xanana Gusmao had set up a task force to deal with the underlying issues that led to the dismissal of the soldiers.
Negotiations appeared promising. Two weeks ago, President Jose Ramos-Horta himself met with Reinado to discuss whether he would turn himself in.
But now Reinado is dead and Mr Ramos-Horta is lying seriously injured in a hospital in Australia, after a pre-dawn attack at the president's home in Dili.
Mr Gusmao has appealed for calm and imposed a 48 hour curfew.
So far the streets are quiet and residents report increased patrols by local and international army and police personnel.
But there are fears that Reinado's young supporters could take to the streets and clash with supporters of the president and government.
Since becoming a fugitive, Reinado had taken on the status of a cult leader for groups of unemployed and dissatisfied East Timorese youth.
With few prospects of employment, many young people had become disenchanted with the political leadership and turned to this charismatic and outspoken figure for inspiration.
Many young people feel their dreams of a successful, prosperous, independent East Timor are being stifled by the current political leadership.
They feel politicians focus too much on the past and old feuds that started decades ago during East Timor's armed resistance against the Indonesian occupation.
Instead of building up independent institutions that serve the population, they say, political, civilian and military leaders are too busy allying themselves with different factions and securing their own support.
Young and poor
There is little trust on either side of the political divide.
East Timor is one of the poorest countries in the world
Dili has become a city where rumours spread quickly, often sent by text message.
These rumours can quickly flare up into violence between gangs, who fight on the streets with stones and home-made weapons.
The problem is exacerbated by the fragile state of the Timorese economy.
The country is one of the world's poorest.
Despite oil reserves and international aid money, East Timor is still struggling economically.
The uncertain security situation means the country has not attracted much foreign investment.
It is also a young country - with over half its population under the age of 25.
This is a generation born during the final years of Indonesia's brutal 25-year occupation, during which 200,000 East Timorese are estimated to have either been killed or died of starvation.
Today's young people lived through the violent struggle for independence in 1999 and are now looking to establish their future.
Mr Gusmao's insistence on a curfew and the presence of international peacekeepers means that the security situation in Dili is under control for the moment.
But unless the long-standing divisions behind the current crisis are solved, there is unlikely to be a peaceful resolution.