A kilometre or two east of Dili's CBD, the Foreign Minister was greeted by shanty towns across the road from the beach.

They highlight the extreme poverty and immense task still ahead of East Timor's bid for economic independence, more than 16 years after becoming an independent nation.

Australia was East Timor's close friend and neighbour then, leading the military confrontation of pro-Jakarta militias involved in mass murder and war crimes against the East Timorese people.

Ms Bishop's visit was her first to East Timor since becoming foreign minister five years ago, and the first by any Australian federal minister in that time.

The countries' relations have deteriorated over disputes about oil and gas fields in the Timor Gap - earning Australia criticism internationally for perceived bullying - and culminating in a spying scandal when it was revealed Australia allegedly bugged East Timor's cabinet office during negotiations.

Former East Timor president and Nobel Peace Prize winner Jose Ramos-Horta said last week the Australian government should drop its criminal charges against the men who exposed the spying, whistleblower Witness K and his lawyer Bernard Colleary whose only crime was revealing a powerful country spying on an an "impoverished one".

This week's talks were about "embarking on a new chapter" now a maritime boundary agreement at the UN has been signed, with annual ministerial meetings to be held, said Ms Bishop.

"We want to see a confident, prosperous and independent Timor-Leste, that is strong and stable with opportunities for its young people," Ms Bishop told AAP in Dili.

East Timor's Foreign Minister Dionisio Babo Soares said Ms Bishop's visit and the maritime deal were milestones between countries with strong, historical "people-to-people connections in times of need".

"Minister Bishop and I had a very candid, fruitful discussion on a range of issues to open a new chapter and commit to friendship and revitalising the partnership," he said.

The relationship is a complicated and unequal one, with Australia one of the world's richest countries and East Timor, only an hour's flight from Darwin, one of the poorest.

But it's an important relationship many Australians feel morally obliged to, dating back to World War II and then the Whitlam government's inaction when Indonesia invaded.

Ms Bishop attended a solemn ceremony with Australian and East Timorese military officials and local schoolchildren at the Dare World War II memorial that commemorates the courageous East Timorese civilians who fought and died supporting Australian diggers in the Battle of Timor.

She held talks with president Francisco Guterres Lu'olo and Prime Minister Taur Matan Ruak.

She also visited projects that Australia funds, as East Timor's biggest aid donor, contributing $91 million this year and similar annual amounts since independence.

What Australia takes for granted, in terms of infrastructure such as roads and decent internet, education and health standards that stop malnutrition and unsafe births, remain significant problems here.

As well as widespread murder, displacement of people and a humanitarian crisis, the Indonesian military destroyed more than half of its fixed infrastructure, including most schools, when it left East Timor, making sure it was worse off than when it invaded in 1975.

Violence by men against women and children is another major problem in East Timor, with the Australian-funded Nabilan program reporting that 59 per cent of women experience violence from an intimate partner, compared to one-in-six in Australia.

Up to 77 per cent of children report abuse and trauma.

Trying to change social norms around gender inequality and male entitlement were the challenges, Nabilan team leader Anna Yang said.

The dire state of its economy and lack of industry from years of colonialism doesn't help.

Three-quarters of its population is under 35, with idle young, unemployed men seen throughout Dili's streets.

Australian Mark Notaras, a former international development worker who has founded the Agora food studio restaurant and training centres mentoring young East Timorese in various skills, says the "youth bulge" is the country's biggest challenge.

"Providing training opportunities is great but not if there's no jobs or local private sector to absorb those youths," he told AAP.

The seasonal workers program that brings people to Australia, will be increased from 914 East Timorese workers this year to 1500.

The young people involved go to Australia in six-month stints and earn local wages, enabling them to send thousands of dollars back to East Timor, where the average income is less than $2 a day.

Adelio Alex told AAP he had recently returned from working as a kitchen-hand and bartender at a hotel in Broome and had previously worked on oil rigs, but was struggling to find work in Dili.

Another worker, Louisa, worked at the Cable Beach Resort and had found a job since at a hotel back home at Balibo.

"I really liked it because I gained new experience that I haven't done in my life, Broome is a nice place and everyone was very friendly," Mr Alex told AAP.

East Timor won't become another Bali because it doesn't have the waves but it has tourism potential with world class diving and hiking, beaches with whales and dolphins plus potential in agriculture including coffee, fisheries and forestry.

It is offering 10-year-plus tax breaks to try and attract foreign private sector investment.

East Timor's ambassador to Australia Abel Guterres believes the country is ready to take off economically but it's critical it gets the development of the Greater Sunrise gas fields right.

Now they have secured the gas, the challenge is to negotiate with and stare down global companies Woodside, Shell and Conoco Phillips to ensure East Timor benefits and gas is piped there to be processed rather than in Australia.

"As a small country, it will play a transformational role for the economy," he told AAP.

Australian Associated Press