In August 2001 East Timor held its first democratic elections, with 16 political parties participating. The elections established an 88-member constituent assembly that was responsible for drafting and adopting East Timor’s first constitution. Fretilin, the party most directly associated with East Timor’s independence struggle, won 55 seats in the assembly, giving it a simple majority.

East Timor's Constituent Assembly on 22 March signed into force the territory's first-ever Constitution after six months of drafting, consultation and debate. The 170-article Constitution was officially approved by a nominal role call.

The Constitution provided for a republic with a president as head of state and a prime minister as head of government. In another preparatory step toward full independence, East Timor held its first, direct presidential elections in April. Former resistance leader Xanana Gusmão, who after the 1999 referendum was freed by the Indonesian government and allowed to return to East Timor, was elected to the post with an overwhelming majority.