The events plunged the recently independent nation into fresh uncertainty after a flare-up in violence in 2006 killed 37 people, displaced more than 150,000 others and led to the collapse of the government.
Two cars carrying rebels soldiers passed Ramos-Horta's house on the outskirts of Dili at around 7 a.m. local time and began shooting, said army spokesman Maj. Domingos da Camara. The guards returned fire, he said.
Notorious rebel leader Alfredo Reinado was killed in the attack, as was one of Ramos-Horta's guards, da Camara said.
Reinado was due to go on trial in absentia for his alleged role in several deadly shootings between police and military units during the violence in 2006. He had evaded captured since then and refused repeated pleas by the government to surrender.
Australian-led troops restored calm following the 2006 turmoil and peaceful elections were held in which Ramos-Horta was elected president. Low-level violence had continued in the country of 1 million people since then.
Deposed Prime Minister Mari Alkatiri has maintained Ramos-Horta's government was illegitimate. His political party immediately condemned Monday's attack in a statement released to the media.
East Timor, a former Portuguese colony, gained independence in 2002 after voting to break free from more than two decades of brutal Indonesian occupation in a U.N.-sponsored ballot.
Ramos-Horta and Gusmao, who led the armed struggle against the occupation, have vowed to tackle rampant poverty and restore damaged relations between the country's police and army.
Ramos-Horta shared the 1996 Nobel Peace Prize with countryman Bishop Carlos Belo for leading a nonviolent struggle against the occupation.
