With the Timor Sea's oil and gas reserves estimated to be worth more than $42 billion there is a lot at stake for both countries, especially the impoverished Timorese, with the three existing major oil and gas fields - Sunrise, Bayu Undan and Laminaria - located closer to East Timor than Australia.
Woodside has already said that development at Sunrise will go on hold unless it has clarity on legal and fiscal arrangements by the end of the year.
The drawn out negotiations have become tense in recent times with Timorese Prime Minister Mari Alkatiri accusing Australia of bullying his country to get its way.
Currently under an interim deal, East Timor will get 90% of government revenue from the joint petroleum development area, which includes the Bayu Undan field and part of the proposed Woodside Petroleum-operated Sunrise project.
But under the international unitisation agreement, only 20% of the Sunrise field lies in the joint zone, leaving Australia with the remaining 80%.
"We're making very good progress with the East Timor talks," Mr Downer told reporters.
"We had a very good round of talks last week and we were happy with the way those talks went and I understand from my officials that the East Timorese were happy with those talks.
"So successful were the talks last week we decided to resume the talks this week to keep the process going.
"My ambition is to have these negotiations concluded by Christmas."
The talks are scheduled to last two days and coincide with a new television advertising campaign in Darwin, funded by Perth businessman Ian Melrose, promoting a better deal for East Timor.
Melrose said he is spending two million dollars on advertising in the lead up to the election to make voters in Darwin aware of how the Australian government is short-changing East Timor.