When Argentina used force to reassert its 150-year-old claim to sovereignty over the Falkland Islands last April, Britain lost no time in dispatching a task force to the windswept archipelago. The British watched with pride as 8,500 of their troops forced the interlopers to surrender after seven weeks of grim fighting. The cost on both sides: 1,000 lives and more than $1 billion in equipment. But no subjects of the Crown were happier to see the Union Jack flying over Port Stanley again than the 1,800 Falklanders, who are mainly of British descent. Since the Argentine attack, the islanders have seen only soldiers and a handful of reporters. Last week PEOPLE became the first American magazine to send a journalist to visit the outpost. Terry Smith filed this report:

When artist and gift shop owner Tony Chater heard on the islands' radio station that the Argentines were about to land, he scurried into action. With the help of his next-door neighbor, he hitched up a trailer to his Land Rover and drove out to Stanley Airport with the idea of blocking the only runway to the Argentine invaders. "When we got there," Tony recalls, "half of Stanley was there with trailers, tractors and Land Rovers all over the runway." The Falklanders found it hard to believe they were to be trapped in the center of a major military confrontation. "The possibility had always been at the back of my mind," says Tony, "but I didn't really think it would happen." At 10 p.m., reassured by the BBC world news, the Port Stanley residents went home to bed. By dawn, the Argentine invasion was a reality. Under cover of darkness troops came flooding ashore. "I knew our way of life was about to be smashed," says Tony.

The morning brought explosions and gunfire. Near the stone-and-brick Government House, the islands' 79 British marines were making their last stand. Through the windows of the 130-year-old stone house that is both home and shop for the Chaters, the family glimpsed three Argentine soldiers crouching in a ditch. "I was scared, but not panic-stricken," remembers Tony. "We felt sad more than anything. We felt the British had let us down. We were in a pickle and I couldn't see how they were going to get us out."

English-born Tony was 19 and a frustrated wildlife painter when he answered a magazine ad offering work in the Falklands for "shepherds, no experience necessary." He came to the islands and stuck it out as a shepherd for 18 months. Then he worked as a tour guide and met and married storekeeper Anne Strange, a divorcee and fellow refugee from Britain who'd emigrated in 1964. Though life in Port Stanley might seem dull—the town has no restaurants, movie house or television—Tony, 29, and Anne, 42, found it a tranquil place to raise their children, Tom, now 6, and Bill, 5. "This was a little, clean, quiet village," explains Anne, a schools supervisor. "All you would hear were the two seaplanes taking off twice a day for the outer settlements, and once a week the jet from Argentina. Suddenly we had masses of armed soldiers in the streets, heavy amphibious craft and a constant stream of jet aircraft roaring in by day and night. It was terrifying; our nerves were jangled."

The first Argentine soldiers to visit the Chaters were polite but surprised that the 900 residents of Port Stanley were not hailing them as liberators. Later a single soldier, demanding to search the house, pointed his machine gun at Tony. The incident terrified his sons and left Tony seething. The Argentine commander, Gen. Mario Benjamin Menéndez, imposed a series of unpopular edicts on the islanders. He ordered them to drive on the right (the opposite, as in Britain, is a Falklands tradition), to close their shops until further notice, and to treat his soldiers with respect. A curfew was set from 4 p.m. to 8:30 a.m. "The Argies increasingly encroached on our freedom," says Tony. "Eventually we were not allowed outside Stanley at all." Adds Anne: "We felt like moles. It led to a lot of psychological pressure, and we got on one another's nerves a bit." As the occupation wore on, Anne became bitter. She ordered Tom and Bill to stop waving at Argentine soldiers. When two hungry and dejected recruits asked her to buy chocolate at the local general store after it had reopened, she snapped at them. "I pointed to the sea and told them, 'There's chocolate in Argentina. Go back there and buy it.' The incident upset me," Anne concedes. "This has always been a place where you smile and say hello, and I felt guilty about compromising my principles, even though they were the aggressors. Hatred is just not in my nature."

In fact, the troops never physically molested any civilians, and the islanders began to feel sympathy for the young Argentine draftees, who lived in freezing, water-filled trenches while their officers commandeered housing that had been evacuated by people fleeing to the rural settlements. The officers dined well; one group of six even brought in its own chef.

Tony Chater knew that Port Stanley would become a battlefield. "I realized that Mrs. Thatcher's task force wasn't coming down here on a joyride," he explains. "They were coming to push the Argies out, and there was bound to be a fierce fight." Tony hid his shop's stock of silver jewelry (typical items: cuff links, pendants, brooches) under the counter and built a blastproof shelter for the family in one room of their thick-walled stone home. By covering the window with metal radiators on the outside and mattresses supported by boards on the inside, he thought they could survive everything but a direct hit. When the final British onslaught on Stanley began June 12 with a night of nonstop shelling, the Chaters stayed inside and waited anxiously.

Two days later Tony and Anne woke to the sounds of liberation—army boots crunching through a thin layer of ice on the road outside their home. Looking out, they saw Argentine soldiers, exhausted and half-starved, retreating from the battle area. The next day, when the Chaters rushed to the town center to welcome the British troops, they were stunned by the destruction. Parts of the normally well-scrubbed capital resembled a World War I battlefield. Churned to oily mud by artillery shells, the ground was littered with ammunition, discarded fuel drums, empty food cans. Three islanders—all women—were killed by a single misdirected British shell that landed on a house, the only deaths among the Falklanders. Twenty-seven homes had been smashed to match-wood, and the exteriors of many others bore the raking scars of gunfire and shrapnel. In the last days of the siege the Argies had slaughtered sheep and cattle and had looted empty houses for food. Sheds and fences close to the Argentine positions were torn down for use in the construction of makeshift bunkers. Returning to find her home half destroyed by shellfire, the Chaters' friend Kathy Laffi showed more compassion than anger: "How can you feel bitterness toward an army of half-starved boy soldiers?" she asks. "Why, there was one lad found dead in a trench who looked no older than 14. In one hand he was clutching his rifle, in the other a toy boat."

The battered town is recovering. Water is available only three hours a day, due to damage at the purification plant. Port Stanley remains virtually cut off from the rest of East Falkland Island by the minefields laid by the Argentines. The town peat bog—the source of fuel for heat, hot water and cooking—and two main beaches are mined. Because the plastic mines are undetectable by conventional means, British military engineers think it unlikely they can recover all the devices. A poster showing various types of mines is displayed in the general store to make residents aware of the danger.

Only one family has applied to leave the Falklands since the conflict, but the Chaters typify a general mood of pessimism. Only by large-scale investment in the fishery, seaweed and oil industries can Britain maintain its rule over the islands, Tony believes. "I rather fear that this isn't the end of the story," he adds gloomily. "We won't feel safe unless this place is made into a fortress."