The first monitoring report on the initial phase of restored devolution concluded "so far, so good" but warned of potential problems ahead.

With the Executive due to resume meetings the week after next following their summer break, it also pin-pointed policing and spending decisions among the key difficulties.

"Thus far, re-devolution has progressed relatively smoothly and the fully inclusive Executive has shown some early signs of cohesiveness.

"So far, so good. But it would be unwise to be overly sanguine," the report by the Northern Ireland research team said.

Key issues over policing and criminal justice are by no means agreed, despite the target date of next May, and a row is definitely brewing over the introduction of an Irish Language Act.

"These and other items offered fissile issues that could destabilise the Executive and impair inter-ministerial relations," it warned. " In particular, dealing with Northern Ireland's 'troubled' past had the potential to derail the new arrangements."

Having failed to persuade Prime Minister Gordon Brown to provide a significant transitional package or to align corporation tax in Northern Ireland with the Republic, there are also difficult decisions to be faced on local taxation, spending and local-government reform.

Authors Rick Wilford and Robin Wilson, of Queen's University, said whatever the reservations harboured by some about the settlement which led to the restoration of devolution, the decision by the DUP and Sinn Fein to share power in March had led to a change in the public atmosphere.

It was led above all by the emergent relationship between the two principals, First Minister Ian Paisley and Deputy First Minister Martin McGuinness.

"Under the surface, however, all was not quite so rosy as the carefully-staged media events suggested," the team said.

As evidence they cite the Belfast Telegraph revelations that a new 'peace wall' is to be built in north Belfast and the Assembly decision to note, rather than endorse, the Direct Rule policy on 'community relations', called A Shared Future.

The report also said a "discreet veil" had been drawn over Ian Paisley jnr's remarks on homosexuality, but went on "the potential for trouble was obvious".

The report is part of a three- year programme under the Constitution Unit, monitoring devolution across the UK.