diff --git a/build/sdk.atree b/build/sdk.atree
index 16d65de..d3cfced 100644
--- a/build/sdk.atree
+++ b/build/sdk.atree
@@ -59,6 +59,7 @@
 development/tools/scripts/layout.template platforms/${PLATFORM_NAME}/templates/layout.template
 development/tools/scripts/strings.template platforms/${PLATFORM_NAME}/templates/strings.template
 development/tools/scripts/android_rules.xml platforms/${PLATFORM_NAME}/templates/android_rules.xml
+development/tools/scripts/android_test_rules.xml platforms/${PLATFORM_NAME}/templates/android_test_rules.xml
 development/tools/scripts/build.template tools/lib/build.template
 
 # emacs support
@@ -125,6 +126,11 @@
 bin/traceview tools/traceview
 framework/traceview.jar tools/lib/traceview.jar
 
+# emma lib for code coverage support
+framework/emmalib.jar tools/lib/emma_device.jar
+external/emma/lib/emma.jar tools/lib/emma.jar
+external/emma/lib/emma_ant.jar tools/lib/emma_ant.jar
+
 # custom ant tasks
 framework/anttasks.jar tools/lib/anttasks.jar
 
diff --git a/tools/anttasks/src/com/android/ant/SetupTask.java b/tools/anttasks/src/com/android/ant/SetupTask.java
index ffe8314..27d73d6 100644
--- a/tools/anttasks/src/com/android/ant/SetupTask.java
+++ b/tools/anttasks/src/com/android/ant/SetupTask.java
@@ -58,7 +58,8 @@
  */
 public final class SetupTask extends ImportTask {
     private final static String ANDROID_RULES = "android_rules.xml";
-
+    // additional android rules for test project - depends on android_rules.xml
+    private final static String ANDROID_TEST_RULES = "android_test_rules.xml";
     // ant property with the path to the android.jar
     private final static String PROPERTY_ANDROID_JAR = "android.jar";
     // LEGACY - compatibility with 1.6 and before
@@ -103,6 +104,13 @@
 
         // get the target property value
         String targetHashString = antProject.getProperty(ProjectProperties.PROPERTY_TARGET);
+
+        boolean isTestProject = false;
+
+        if (antProject.getProperty("tested.project.dir") != null) {
+            isTestProject = true;
+        }
+
         if (targetHashString == null) {
             throw new BuildException("Android Target is not set.");
         }
@@ -215,17 +223,21 @@
         if (mDoImport) {
             // make sure the file exists.
             File templates = new File(templateFolder);
+
             if (templates.isDirectory() == false) {
                 throw new BuildException(String.format("Template directory '%s' is missing.",
                         templateFolder));
             }
 
+            String importedRulesFileName = isTestProject ? ANDROID_TEST_RULES : ANDROID_RULES;
+
             // now check the rules file exists.
-            File rules = new File(templateFolder, ANDROID_RULES);
+            File rules = new File(templateFolder, importedRulesFileName);
+
             if (rules.isFile() == false) {
                 throw new BuildException(String.format("Build rules file '%s' is missing.",
                         templateFolder));
-           }
+            }
 
             // set the file location to import
             setFile(rules.getAbsolutePath());
diff --git a/tools/scripts/android_rules.xml b/tools/scripts/android_rules.xml
index 64f0e39..bdb9834 100644
--- a/tools/scripts/android_rules.xml
+++ b/tools/scripts/android_rules.xml
@@ -27,36 +27,46 @@
     <property name="android.tools.dir" location="${sdk.dir}/tools" />
 
     <!-- Input directories -->
-    <property name="source.dir" location="src" />
-    <property name="gen.dir" location="gen" />
-    <property name="resource.dir" location="res" />
-    <property name="asset.dir" location="assets" />
+    <property name="source.dir" value="src" />
+    <property name="source.absolute.dir" location="${source.dir}" />
+    <property name="gen.dir" value="gen" />
+    <property name="gen.absolute.dir" location="${gen.dir}" />
+    <property name="resource.dir" value="res" />
+    <property name="resource.absolute.dir" location="${resource.dir}" />
+    <property name="asset.dir" value="assets" />
+    <property name="asset.absolute.dir" location="${asset.dir}" />
 
-    <!-- Directory for the 3rd party java libraries -->
-    <property name="external.libs.dir" location="libs" />
+    <!-- Directory for the third party java libraries -->
+    <property name="external.libs.dir" value="libs" />
+    <property name="external.libs.absolute.dir" location="${external.libs.dir}" />
+
+    <!-- In this file it is just alias for external.libs.absolute.dir. It is used for
+         reusability though, when calling ant targets in this file from other files.
+         However, it is a temporary solution. -->
+    <property name="external.jars" location="${external.libs.absolute.dir}" />
 
     <!-- Directory for the native libraries -->
-    <property name="native.libs.dir" location="libs" />
+    <property name="native.libs.dir" value="libs" />
+    <property name="native.libs.absolute.dir" location="${native.libs.dir}" />
 
     <!-- Output directories -->
-    <property name="gen.dir" location="gen" />
-    <property name="out.dir" location="bin" />
-    <property name="out.classes.dir" location="${out.dir}/classes" />
-
-    <!-- Out directory for a parent project if this project is an instrumentation project -->
-    <property name="main.out.dir" location="../${out.dir}" />
-    <property name="main.out.classes.dir" location="${main.out.dir}/classes" />
+    <property name="out.dir" value="bin" />
+    <property name="out.absolute.dir" location="${out.dir}" />
+    <property name="out.classes.dir" value="${out.dir}/classes" />
+    <property name="out.classes.absolute.dir" location="${out.classes.dir}" />
 
     <!-- Intermediate files -->
     <property name="dex.file.name" value="classes.dex" />
-    <property name="intermediate.dex.file" location="${out.dir}/${dex.file.name}" />
+    <property name="intermediate.dex.file" location="${out.absolute.dir}/${dex.file.name}" />
 
     <!-- The final package file to generate -->
-    <property name="out.debug.unaligned.package" location="${out.dir}/${ant.project.name}-debug-unaligned.apk" />
-    <property name="out.debug.package" location="${out.dir}/${ant.project.name}-debug.apk" />
-    <property name="out.unsigned.package" location="${out.dir}/${ant.project.name}-unsigned.apk" />
-    <property name="out.unaligned.package" location="${out.dir}/${ant.project.name}-unaligned.apk" />
-    <property name="out.release.package" location="${out.dir}/${ant.project.name}-release.apk" />
+    <property name="out.debug.unaligned.package"
+                  location="${out.absolute.dir}/${ant.project.name}-debug-unaligned.apk" />
+    <property name="out.debug.package" location="${out.absolute.dir}/${ant.project.name}-debug.apk" />
+    <property name="out.unsigned.package" location="${out.absolute.dir}/${ant.project.name}-unsigned.apk" />
+    <property name="out.unaligned.package"
+                  location="${out.absolute.dir}/${ant.project.name}-unaligned.apk" />
+    <property name="out.release.package" location="${out.absolute.dir}/${ant.project.name}-release.apk" />
 
     <!-- Tools -->
     <condition property="exe" value=".exe" else=""><os family="windows" /></condition>
@@ -68,11 +78,11 @@
     <!-- Creates the output directories if they don't exist yet. -->
     <target name="-dirs">
         <echo>Creating output directories if needed...</echo>
-        <mkdir dir="${resource.dir}" />
-        <mkdir dir="${external.libs.dir}" />
-        <mkdir dir="${gen.dir}" />
-        <mkdir dir="${out.dir}" />
-        <mkdir dir="${out.classes.dir}" />
+        <mkdir dir="${resource.absolute.dir}" />
+        <mkdir dir="${external.libs.absolute.dir}" />
+        <mkdir dir="${gen.absolute.dir}" />
+        <mkdir dir="${out.absolute.dir}" />
+        <mkdir dir="${out.classes.absolute.dir}" />
     </target>
 
     <!-- Generates the R.java file for this project's resources. -->
@@ -82,11 +92,11 @@
             <arg value="package" />
             <arg value="-m" />
             <arg value="-J" />
-            <arg path="${gen.dir}" />
+            <arg path="${gen.absolute.dir}" />
             <arg value="-M" />
             <arg path="AndroidManifest.xml" />
             <arg value="-S" />
-            <arg path="${resource.dir}" />
+            <arg path="${resource.absolute.dir}" />
             <arg value="-I" />
             <arg path="${android.jar}" />
         </exec>
@@ -97,9 +107,9 @@
         <echo>Compiling aidl files into Java classes...</echo>
         <apply executable="${aidl}" failonerror="true">
             <arg value="-p${android.aidl}" />
-            <arg value="-I${source.dir}" />
-            <arg value="-o${gen.dir}" />
-            <fileset dir="${source.dir}">
+            <arg value="-I${source.absolute.dir}" />
+            <arg value="-o${gen.absolute.dir}" />
+            <fileset dir="${source.absolute.dir}">
                 <include name="**/*.aidl" />
             </fileset>
         </apply>
@@ -108,27 +118,48 @@
     <!-- Compiles this project's .java files into .class files. -->
     <target name="compile" depends="-resource-src, -aidl"
                 description="Compiles project's .java files into .class files">
+        <!-- Allows to inject additional classpath from another (build|property) file.
+             As ant properties are immutable, the injected value will have priority
+             over the one defined below -->
+        <property name="extensible.classpath" value="." />
         <javac encoding="ascii" target="1.5" debug="true" extdirs=""
-                destdir="${out.classes.dir}"
-                bootclasspathref="android.target.classpath">
-            <src path="${source.dir}" />
-            <src path="${gen.dir}" />
+                destdir="${out.classes.absolute.dir}"
+                bootclasspathref="android.target.classpath"
+                verbose="false" classpath="${extensible.classpath}">
+            <src path="${source.absolute.dir}" />
+            <src path="${gen.absolute.dir}" />
             <classpath>
-                <fileset dir="${external.libs.dir}" includes="*.jar" />
-                <pathelement path="${main.out.classes.dir}" />
+                <fileset dir="${external.libs.absolute.dir}" includes="*.jar" />
             </classpath>
-         </javac>
+        </javac>
     </target>
 
+    <!-- Configurable macro, which allows to pass as parameters output directory,
+         output dex filename and external libraries to dex (optional) -->
+    <macrodef name="dex-helper">
+       <attribute name="out.absolute.dir" />
+       <attribute name="out.dex.file" />
+       <element name="external-libs" optional="yes" />
+       <sequential>
+         <echo>Converting compiled files and external libraries into @{out.dex.file}...</echo>
+         <apply executable="${dx}" failonerror="true" parallel="true">
+             <arg value="--dex" />
+             <arg value="--output=@{out.dex.file}" />
+             <arg path="@{out.absolute.dir}" />
+             <external-libs />
+         </apply>
+       </sequential>
+    </macrodef>
+
     <!-- Converts this project's .class files into .dex files -->
     <target name="-dex" depends="compile">
-        <echo>Converting compiled files and external libraries into ${out.dir}/${dex.file.name}...</echo>
-        <apply executable="${dx}" failonerror="true" parallel="true">
-            <arg value="--dex" />
-            <arg value="--output=${intermediate.dex.file}" />
-            <arg path="${out.classes.dir}" />
-            <fileset dir="${external.libs.dir}" includes="*.jar" />
-        </apply>
+        <dex-helper out.absolute.dir="${out.absolute.dir}/classes"
+                out.dex.file="${intermediate.dex.file}">
+            <external-libs>
+                <!-- Temporary solution, before <jarfile> in <apkbuilder> is ready -->
+                <fileset dir="${external.jars}" includes="*.jar" />
+            </external-libs>
+        </dex-helper>
     </target>
 
     <!-- Puts the project's resources into the output package file
@@ -141,10 +172,10 @@
         <aaptexec executable="${aapt}"
                 command="package"
                 manifest="AndroidManifest.xml"
-                resources="${resource.dir}"
-                assets="${asset.dir}"
+                resources="${resource.absolute.dir}"
+                assets="${asset.absolute.dir}"
                 androidjar="${android.jar}"
-                outfolder="${out.dir}"
+                outfolder="${out.absolute.dir}"
                 basename="${ant.project.name}" />
     </target>
 
@@ -152,14 +183,14 @@
          This requires the property sign.package to be set to true or false. -->
     <target name="-package">
         <apkbuilder
-                outfolder="${out.dir}"
+                outfolder="${out.absolute.dir}"
                 basename="${ant.project.name}"
                 signed="${sign.package}"
                 verbose="true">
             <file path="${intermediate.dex.file}" />
-            <sourcefolder path="${source.dir}" />
-            <jarfolder path="${external.libs.dir}" />
-            <nativefolder path="${native.libs.dir}" />
+            <sourcefolder path="${source.absolute.dir}" />
+            <jarfolder path="${external.jars}" />
+            <nativefolder path="${native.libs.absolute.dir}" />
         </apkbuilder>
     </target>
 
@@ -171,8 +202,8 @@
        <property name="sign.package" value="true" />
     </target>
 
-    <target name="debug" depends="-dex, -package-resources, -debug-sign, -package"
-                description="Builds the application and signs it with a debug key.">
+    <!-- Builds debug output package, provided all the necessary files are already dexed -->
+    <target name="-debug-no-dex" depends="-package-resources, -debug-sign, -package">
         <echo>Running zip align on final apk...</echo>
         <exec executable="${zipalign}" failonerror="true">
             <arg value="-f" />
@@ -183,8 +214,10 @@
         <echo>Debug Package: ${out.debug.package}</echo>
     </target>
 
-    <target name="-release-package" depends="-dex, -package-resources, -no-sign, -package">
-    </target>
+    <target name="debug" depends="-dex, -debug-no-dex"
+                description="Builds the application and signs it with a debug key." />
+
+    <target name="-release-package" depends="-dex, -package-resources, -no-sign, -package" />
 
     <target name="-release-check">
         <condition property="release.sign">
@@ -202,8 +235,8 @@
     </target>
 
     <target name="release" depends="-release-package, -release-nosign" if="release-sign"
-                description="Builds the application. The generated apk file must be signed before it is published.">
-
+                description="Builds the application. The generated apk file must be signed before
+                            it is published.">
         <!-- Gets passwords -->
         <input
                 message="Please enter keystore password (store:${key.store}):"
@@ -234,8 +267,7 @@
     </target>
 
     <!-- Installs the package on the default emulator/device -->
-    <target name="install" depends="debug"
-                description="Installs/reinstalls the debug package onto a running emulator or device. This can only be used if the application has not yet been installed.">
+    <target name="-install-no-deps">
         <echo>Installing ${out.debug.package} onto default emulator or device...</echo>
         <exec executable="${adb}" failonerror="true">
             <arg value="install" />
@@ -244,6 +276,13 @@
         </exec>
     </target>
 
+    <target name="install" depends="debug, -install-no-deps"
+                description="Installs/reinstalls the debug package onto a running
+                            emulator or device. If the application was previously installed,
+                            the signatures must match." />
+
+    <target name="-install-no-dex" depends="-debug-no-dex, -install-no-deps" />
+
     <target name="-uninstall-check">
         <condition property="uninstall.run">
            <isset property="application.package" />
@@ -251,11 +290,14 @@
     </target>
 
     <target name="-uninstall-error" depends="-uninstall-check" unless="uninstall.run">
-        <echo>Unable to run 'ant uninstall', application.package is not defined in build.properties</echo>
+        <echo>
+        Unable to run 'ant uninstall', application.package is not defined in build.properties
+        </echo>
     </target>
 
     <!-- Uninstalls the package from the default emulator/device -->
-    <target name="uninstall" depends="-uninstall-error" if="uninstall.run" description="Uninstalls the application from a running emulator or device.">
+    <target name="uninstall" depends="-uninstall-error" if="uninstall.run"
+                description="Uninstalls the application from a running emulator or device.">
         <echo>Uninstalling ${application.package} from the default emulator or device...</echo>
         <exec executable="${adb}" failonerror="true">
             <arg value="uninstall" />
@@ -264,8 +306,8 @@
     </target>
 
     <target name="clean" description="Removes output files created by other targets.">
-        <delete dir="${out.dir}" />
-        <delete dir="${gen.dir}" />
+        <delete dir="${out.absolute.dir}" />
+        <delete dir="${gen.absolute.dir}" />
     </target>
 
     <target name="help">
@@ -278,7 +320,7 @@
         <echo>   debug:     Builds the application and signs it with a debug key.</echo>
         <echo>   release:   Builds the application. The generated apk file must be</echo>
         <echo>              signed before it is published.</echo>
-        <echo>   install:   Installs/reinstall the debug package onto a running</echo>
+        <echo>   install:   Installs/reinstalls the debug package onto a running</echo>
         <echo>              emulator or device.</echo>
         <echo>              If the application was previously installed, the</echo>
         <echo>              signatures must match.</echo>
diff --git a/tools/scripts/android_test_rules.xml b/tools/scripts/android_test_rules.xml
new file mode 100644
index 0000000..dbad32d
--- /dev/null
+++ b/tools/scripts/android_test_rules.xml
@@ -0,0 +1,131 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<project name="android_test_rules" default="run-tests">
+
+    <import file="android_rules.xml" />
+
+    <!-- Existence of this property in build.properties or build.xml is an assertion for the test
+         project
+         <property name="tested.project.dir" value=".." /> -->
+    <property name="tested.project.absolute.dir" location="${tested.project.dir}" />
+    <property name="instrumentation.dir" value="instru" />
+    <property name="instrumentation.absolute.dir" location="${instrumentation.dir}" />
+
+    <property name="test.runner" value="android.test.InstrumentationTestRunner" />
+    <property name="application.package.to.instrument" value="${application.package}.tests" />
+
+    <!-- Enables adding tested project classes location to test project classpath -->
+    <property name="extensible.classpath" value="${tested.project.absolute.dir}/bin/classes" />
+
+    <!-- TODO: make it more configurable in the next CL's - now it is default for auto-generated
+         project -->
+    <property name="emma.dump.file" value="/data/data/${application.package}/files/coverage.ec" />
+
+    <!-- Emma configuration -->
+    <property name="emma.dir" value="${sdk.dir}/tools/lib" />
+        <path id="emma.lib">
+             <pathelement location="${emma.dir}/emma.jar" />
+             <pathelement location="${emma.dir}/emma_ant.jar" />
+        </path>
+    <taskdef resource="emma_ant.properties" classpathref="emma.lib" />
+    <!-- End of emma configuration -->
+
+    <!-- Runs 'compile' target for tested project -->
+    <target name="-compile-tested-project">
+        <subant target="compile">
+           <fileset dir="${tested.project.absolute.dir}" includes="build.xml" />
+        </subant>
+    </target>
+
+    <!-- Emma-instruments tested project classes (compiles the tested project if necessary)
+         and writes instrumented classes to ${instrumentation.absolute.dir}/classes -->
+    <target name="-emma-instrument" depends="-compile-tested-project">
+        <echo>Instrumenting classes from ${instrumentation.dir}/${out.dir}/classes...</echo>
+        <!-- It only instruments class files, not any external libs -->
+        <emma enabled="true">
+            <instr verbosity="verbose"
+                   mode="copy"
+                   instrpath="${tested.project.absolute.dir}/${out.dir}/classes"
+                   outdir="${instrumentation.absolute.dir}/classes">
+            </instr>
+            <!-- TODO: exclusion filters on R*.class and allowing custom exclusion from
+                 user defined file -->
+        </emma>
+    </target>
+
+    <!-- Dexes emma-instrumented classes -->
+    <target name="-dex-instrumented" depends="-emma-instrument">
+       <dex-helper out.absolute.dir="${instrumentation.absolute.dir}/classes"
+                                   out.dex.file="${instrumentation.absolute.dir}/${dex.file.name}">
+          <external-libs>
+            <fileset dir="${external.libs.dir}" includes="*.jar" />
+            <fileset dir="${emma.dir}">
+                <include name="emma_device.jar" />
+            </fileset>
+          </external-libs>
+       </dex-helper>
+    </target>
+
+    <!-- Installs instrumented package on the default emulator/device -->
+    <target name="-install-instrumented" depends="-dex-instrumented">
+        <subant target="-install-no-dex">
+            <property name="out.absolute.dir" value="${instrumentation.absolute.dir}" />
+            <property name="external.jars" location="${emma.dir}/emma_device.jar" />
+            <fileset dir="${tested.project.absolute.dir}" includes="build.xml" />
+        </subant>
+    </target>
+
+    <macrodef name="run-tests-helper">
+        <attribute name="emma.enabled" default="false" />
+        <sequential>
+            <echo>Running tests ...</echo>
+            <exec executable="${adb}" failonerror="true">
+                <arg value="shell" />
+                    <arg value="am" />
+                <arg value="instrument" />
+                   <arg value="-w" />
+                <arg value="-e" />
+                   <arg value="coverage" />
+                <arg value="@{emma.enabled}" />
+                   <arg value="${application.package.to.instrument}/${test.runner}" />
+            </exec>
+        </sequential>
+    </macrodef>
+
+    <!-- Ensures that tested project is installed on the device before we run the tests.
+         Used for ordinary tests, without coverage measurement -->
+    <target name="-install-tested-project">
+        <subant target="install">
+            <fileset dir="${tested.project.absolute.dir}" includes="build.xml" />
+        </subant>
+    </target>
+
+    <target name="run-tests" depends="-install-tested-project, install"
+                description="Runs tests from the package defined in test.package property">
+        <run-tests-helper />
+    </target>
+
+    <target name="coverage" depends="-install-instrumented, install"
+                description="Runs test on instrumented code and generates code coverage report">
+        <run-tests-helper emma.enabled="true" />
+        <echo>Downloading coverage file into project directory...</echo>
+        <exec executable="${adb}" failonerror="true">
+            <arg value="pull" />
+            <arg value="${emma.dump.file}" />
+            <arg value="coverage.ec" />
+        </exec>
+        <echo>Extracting coverage report...</echo>
+        <emma>
+            <report sourcepath="${tested.project.absolute.dir}/${source.dir}"
+                              verbosity="verbose">
+                <!-- TODO: report.dir or something like should be introduced if necessary -->
+                <infileset dir=".">
+                    <include name="coverage.ec" />
+                    <include name="coverage.em" />
+                </infileset>
+                <!-- TODO: reports in other, indicated by user formats -->
+                <html outfile="coverage.html" />
+           </report>
+        </emma>
+    </target>
+
+</project>
diff --git a/tools/scripts/build.template b/tools/scripts/build.template
index ca15954..3959c57 100644
--- a/tools/scripts/build.template
+++ b/tools/scripts/build.template
@@ -63,4 +63,5 @@
          build steps are used.
     -->
     <setup />
+
 </project>