Xanana Gusmao told a news conference on Tuesday that he had taken sole responsibility for the nation's security, including information and intelligence services, after a week of violence sparked by a rift in the army.
He said he had made the decision in close collaboration with Mari Alkatiri, the prime minister, who many accuse of sparking the crisis by dismissing a group of protesting soldiers last month.
Gusmao also said he alone would co-ordinate with a 2,500-strong Australian-led peacekeeping force that East Timor asked for last week to help put down violence that has claimed at least 20 lives.
But as he spoke, smoke still billowed above several neighbourhoods in Dili as the gangs - the product of massive unemployment and a desperately poor economy in the world's newest nation - played hide-and-seek with the peacekeepers from Australia, Malaysia and New Zealand.
Thousands of people have been displaced and dozens of homes and businesses burnt in the violence, sparked by the sacking of about 600 soldiers after they protested against discrimination in the 1,400-strong army.
Gusmao appealed for people to
hand over illegal weapons
Gusmao appealed for people to hand over illegal weapons and explosives to foreign peacekeepers, and to co-operate with identification checks and surveillance operations.
He said he had chosen not to declare a state of emergency because he did not want to "restrict some liberties".
However, reading from a statement, he said: "The emergency measures announced shall not prejudice the president of the republic from declaring [in the future] a State of Siege, in accordance with due constitutional norms."
Tough to control
The head of the peacekeeping force, Brigadier Mick Slater, said over half the Timorese army had already surrendered their weapons and were accounted for. But he admitted the police, some of whom also allied themselves with army factions, had been more reluctant to come forward.
Nine policemen were gunned down by soldiers last week when they were sent to disarm them. That sparked the violence across the capital.
Slater said he was confident there would be no more clashes between army and police factions, but admitted it was difficult to control Dili's notorious youth gangs.
Another commander, Lieutenant-Colonel Mick Mumford, said while his troops were "patrolling every neighbourhood in this town", he could not put a soldier on guard on every street.
Peacekeepers say youth gangs
have been hard to control
"But I can assure you that soldiers are going through them. It is fair to tell people to go home because it is safe," he added.
Residents were less sure.
"As soon as the soldiers move somewhere else, then they come back," said Eduardo Villes, who had formed a vigilante squad with neighbours to protect property in his area.
The Red Cross says more than 40,000 have been displaced by the violence and food shortages were being felt in the capital.
"We have had nothing to eat for two days now, just some fruit from the trees," said Maria D'almeida, waiting with her daughter and son. "We can buy food, but from where?"