Secretary General Kofi Annan has decided to appoint a Brazilian diplomat to administer East Timor during its transition to democracy, the first stage of a multibillion-dollar U.N. mission in the former Portuguese colony, according to U.S. and European diplomats.

Sergio Viera de Mello, the United Nations' top humanitarian relief official, who ran Kosovo in the weeks following NATO's intervention, will be the virtual governor of the territory. His selection is vigorously backed by the United States, but is likely to prove controversial among regional leaders who want the post to go to a Muslim from Asia.

Annan made the selection after the Timorese leadership said it would boycott any candidate from Southeast Asia and a compromise candidate, former Algerian foreign minister Lakhdar Brahimi, turned down the job, according to the sources.

Annan is expected to formally offer the post to de Mello at a meeting this afternoon and make the announcement by Friday. The sources said de Mello is committed to serving for six months before returning to his current post in New York. The decision comes days before the U.N. Security Council is expected to approve a proposal by Annan to deploy more than 8,000 U.N. peacekeepers in East Timor for three years. The United Nations hopes the peacekeeping mission can move quickly to replace an Australian-led force, which is eager to hand over the job to the world body before the end of the year.

Annan voiced concern in a recent interview that his efforts to react quickly to the crisis in East Timor are being undermined by Washington's failure to meet its financial commitments.

But U.N. officials say Indonesia and Malaysia have led a campaign by a bloc of Third World countries to freeze funding for the U.N. operation in East Timor. The two countries are demanding that the U.N. financial committee in charge of approving the budget for East Timor first pass a resolution criticizing the U.N.'s role there. "This is having a material impact on our ability to recruit people for the mission," said one U.N. source.

U.N. officials say no decision has been made on a commander for the peacekeeping mission. Australian Foreign Minister Alexander Downer said his government is prepared to either lead the U.N. operation or serve under another country. He said the Australian military, which has deployed 4,300 troops in East Timor at a cost of $500 million, will provide the United Nations with as many as 2,000 peacekeepers.