It was the first clash with a pro-Jakarta militia group since the peacekeepers arrived in the devastated Indonesian territory on Sept. 20, Australian Maj. Gen. Peter Cosgrove said.
Four Australians were lightly wounded in the fighting.
The incident took place near the border with Indonesian-ruled West Timor in the last major crossing point still to be brought under peacekeepersÂ' control.
Cosgrove said the peacekeepers were ambushed as they escorted a group of militiamen they had detained to the West Timor border.
Four Australians were lightly wounded in the clash.
Earlier Wednesday, East TimorÂ's spiritual leader Bishop Carlos Belo made an emotional return to the province and received a pledge of protection from peacekeepers.
The Roman Catholic bishop, a symbol of resistance to Indonesian rule, smiled broadly as he was embraced by nuns, priests and a handful of others after he stepped off a private plane. Other passengers and crew on board applauded.
Â"My priority now is to be with the people -- to pray with them, to say Mass with them and to be with them,Â" said Belo, who fled the territory Sept. 7 to escape a wave of violence.
Belo's return marks the first homecoming of a major East Timorese figure since the post-referendum bloodshed began in the mainly Catholic territory of 800,000 people.
In the rampage following the U.N.-sponsored independence referendum, Belo's Dili home was burned and some refugees sheltering there were shot to death. Others were rounded up by Indonesian troops. Hundreds of thousands of people have been displaced by the violence.
Belo shared the 1996 Nobel Peace Prize with Jose Ramos Horta for their peaceful struggle for East Timorese independence.
In New York, meanwhile, U.N. Secretary General Kofi Annan outlined a plan Tuesday for the United Nations to assume control of the territory and deploy a 9,000-strong peacekeeping force to protect it.
The U.N. troops would replace the Australian-led units sent to East Timor 16 days ago to reign in pro-Indonesian forces.
Â"The situation in East Timor is critical,Â" Annan said in a report outlining his proposals for a U.N. administration that would prepare East Timor for full independence in two to three years.
In Dili, a U.N. official announced Wednesday that the first several dozen of some 250,000 people who fled to West Timor -- many reportedly at gunpoint -- would be repatriated Friday.
Kelly confirmed reports that a letter smuggled out of West Timor claimed that militias there were raping and murdering East Timorese refugees. Kelly also said 26 militiamen had turned themselves in over the past 24 hours.
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