TSKHINVALI, Georgia -- The separatist government in this crumbling war-scarred city at the foot of the Caucasus Mountains has its own flag, anthem, president and prime minister - and little else.
Most of the economy in South Ossetia, of which Tskhinvali is the capital, vanished two years ago when Georgian troops shut down a large open-air market that they insisted was a haven for smuggling. Buildings half-destroyed in the region's 1991 war with Georgia have never been rebuilt. People scrape by on $50 a month or less.
Still, it's a life that suffices for the tiny, unrecognized state's 65,000 people, a life they say they will fiercely defend to the last person.
"We can't live very well here, but somehow we survive," said Timur Tskhovbrov, one of thousands of Ossetian men who fought Georgian troops. "Here in the mountains, we can fight in the woods for a long time. They will win, of course, but we'll cause them a lot of trouble."
That kind of defiance poses the greatest challenge for Washington's strongest ally in the Caucasus region, Georgian President Mikhail Saakashvili, as he steers his country westward.
Since leading the Rose Revolution that ousted Eduard Shevardnadze in 2003, Saakashvili has replaced his country's entire police force to rein in corruption, fostered strong economic growth and returned the breakaway province of Ajaria back under Georgia's control.
But he has yet to live up to his promise to regain authority over Georgia's two other breakaway regions, South Ossetia and Abkhazia. And as Saakashvili strives to move Georgia out of the Kremlin's orbit and into Europe's, his administration realizes South Ossetia and Abkhazia stand in the way.
"These are two black holes," said Giorgi Khaindrava, Georgia's conflict settlement minister. "They're open doors for smuggling, for illegal militias, for drug trafficking. They're two serious wounds, and until we cure them, we can't begin to talk about the health of the whole country."
For decades, ethnic Abkhazians and Ossetians endured a tense, uneasy relationship with their Georgian neighbors while Georgia was a Soviet republic. After Georgia declared its independence in 1991, civil war broke out between both ethnic groups and Georgian troops. Abkhazians defended their lush homeland of orange groves and palm trees along the Black Sea coast; Ossetians fought Georgian forces in the forested mountainsides and valleys of South Ossetia.
