diff --git a/new/build-system.jam b/new/build-system.jam
index 7c7def0cd..d442893f2 100644
--- a/new/build-system.jam
+++ b/new/build-system.jam
@@ -3,4 +3,21 @@
 #  all copies. This software is provided "as is" without express or implied
 #  warranty, and with no claim as to its suitability for any purpose.
 import project ;
-project.load "." ;
+import sequence ;
+
+import builtin ;
+import make ;
+
+current-project = [ project.load "."  ] ;
+root-target = [ $(current-project).target ] ;
+virtual-targets = [ $(root-target).generate ] ;
+
+
+actual-targets = ;
+for t in $(virtual-targets)
+{
+    actual-targets += [ $(t).actualize ] ;
+}
+DEPENDS all : $(actual-targets) ;
+
+
diff --git a/new/builtin.jam b/new/builtin.jam
new file mode 100644
index 000000000..ffca7fdd1
--- /dev/null
+++ b/new/builtin.jam
@@ -0,0 +1,17 @@
+#  Copyright (C) Vladimir Prus 2002. Permission to copy, use, modify, sell and
+#  distribute this software is granted provided this copyright notice appears in
+#  all copies. This software is provided "as is" without express or implied
+#  warranty, and with no claim as to its suitability for any purpose.
+
+#  Defines standard features and rules.
+
+import feature : feature compose ;
+
+feature toolset : gcc : implicit ;
+feature optimization : off on ;
+
+feature variant : debug release : implicit composite ;
+compose <variant>debug : <optimization>off ;
+compose <variant>release : <optimization>on ;
+
+
diff --git a/new/make.jam b/new/make.jam
new file mode 100644
index 000000000..90999ed77
--- /dev/null
+++ b/new/make.jam
@@ -0,0 +1,47 @@
+#  Copyright (C) Vladimir Prus 2002. Permission to copy, use, modify, sell and
+#  distribute this software is granted provided this copyright notice appears in
+#  all copies. This software is provided "as is" without express or implied
+#  warranty, and with no claim as to its suitability for any purpose.
+
+#  This module defines the 'make' rule and associated class, derived from
+#  'basic-target'.  
+
+import targets ;
+import class : class new ;
+
+rule make-target-class ( name : project : sources * : requirements * 
+                         : make-rule + : default-build )
+{
+    basic-target.__init__ $(name) : $(project) : $(sources) : $(requirements) 
+                          : $(default-build) ;
+    self.make-rule = $(make-rule) ;    
+    
+    rule construct ( source-targets * : properties * )
+    {
+        local t = [ new virtual-target $(self.name)
+                    : $(self.project) : $(properties) ] ;
+        local a = [ new action $(t) : $(source-targets) : $(self.make-rule) 
+                    : $(properties) ] ;
+        $(t).action $(a) ;
+        return $(t) ;    
+    }   
+}
+
+class make-target-class : basic-target ;
+
+rule make ( target-name : sources * : generating-rule : requirements * )
+{
+    local project = [ CALLER_MODULE ] ;
+    local ptarget = [ $(project).target ] ;
+    local default-build = [ $(project).default-build ] ;
+
+    local target = [ $(ptarget).main-target $(target-name) ] ;
+
+    $(target).add-variant
+        [ new make-target-class $(target-name) : $(project) : $(sources) : $(requirements) 
+          : $(generating-rule) : $(default-build) ] ;
+}
+
+IMPORT $(__name__) : make : : make ;
+
+
diff --git a/new/project.jam b/new/project.jam
index 73c33d7f7..7d575cfa5 100644
--- a/new/project.jam
+++ b/new/project.jam
@@ -54,7 +54,7 @@ rule load ( jamfile-location )
 }
 
 #
-#   Returns the name of project module given its id.
+#   Returns the project location given its id.
 #   Projects can be referred using path@project-id notation. In it, 'path'
 #   selects jamfile location relatively to 'current-location' and 'project-id'
 #   names project relatively to the selected jamfile.
@@ -91,30 +91,75 @@ rule lookup ( id : current-location )
         }
 
         local module-name = [ module-name $(location) ] ;
-        local base-id = [ $(module-name).id ] ;
 
-        if ! $(base-id)
+        if ! $(project-id)
         {
-            error "Project in $(location) has no project id" ;
+            return [ $(module-name).location ] ;
         }
+        else 
+        {
+            local base-id = [ $(module-name).id ] ;
 
-        if $(project-id)
-        {
-            local rooted-id = $(base-id)/$(project-id) ;
-            return $($(rooted-id).jamfile-location) ;
-        }
-        else
-        {
-            return $($(base-id).jamfile-location) ;
-        }
+            if ! $(base-id)
+            {
+                error "Project in $(location) has no project id" ;
+            }
+            else
+            {
+                local rooted-id = $(base-id)/$(project-id) ;
+                return $($(rooted-id).jamfile-location) ;
+            }
+       }     
     }
 }
 
 # Given an 'id' for a target, return an instance of 'main-target' that
-# corresponds to it.
+# corresponds to it. If there's no such main-target, returns empty string.
 rule find-target ( id : current-location )
 {
-    error "Not yet implemented" ;
+    # Find the project first          
+    local project-id ;
+    local target-id ;
+    local explicit ;
+    if [ MATCH (.*)@(.*) : $(id)  ] 
+    {
+        explicit = 1 ;
+        # Take the last "/" separated component after "@" as target id.
+        local split = [ MATCH (.*@(.*/)*)([^/]*) : $(id) ] ;
+        project-id = $(split[1]) ;
+        target-id = $(split[3]) ;
+    }
+    else
+    {
+        # This is not @-id. Treat it as path -- the last "/" separated component
+        # is target id, everything else denote project location.
+        local split = [ MATCH ((.*/)*)([^/]*) : $(id) ] ;
+        if $(split[1]) 
+        {
+                project-id = $(split[1])@ ;        
+        }
+        else
+        {
+                project-id = @ ;
+        }
+        target-id = $(split[3]) ;
+    }
+    local location = [ lookup $(project-id) : $(current-location) ] ;
+    if $(location) {
+        local project-module = [ module-name $(location) ] ;
+        local project-target = [ $(project-module).target ] ;
+        if [ $(project-target).has-main-target $(target-id) ] 
+        {
+            return [ $(project-target).main-target $(target-id) ] ;
+        }
+    } 
+    else if $(explicit)
+    {
+        print.wrapped-text 
+            "The target id" $(id) " specified by project at" $(current-location)
+            "is invalid" ;
+        EXIT ;
+    }
 }
 
 rule project ( id ? : option1 * : option2 * : option3 * )
@@ -401,7 +446,7 @@ module project-rules {
         import class : new ;
         if ! $(__target__)
         {
-            __target__ = [ new project-target "<project>" : $(__name__) ] ;
+            __target__ = [ new project-target $(__name__) : $(__name__) ] ;
         }
         return $(__target__) ;
     }
diff --git a/new/targets.jam b/new/targets.jam
index 32a610d09..174b0b9bc 100644
--- a/new/targets.jam
+++ b/new/targets.jam
@@ -105,11 +105,19 @@ rule project-target ( name : project : requirements * : default-build * )
         {
             self.main-targets += $(name) ;
             self.main-target.$(name) =
-                [ new main-target $(self.name) : $(self.project) ] ;
+                [ new main-target $(name) : $(self.project) ] ;
         }
         return $(self.main-target.$(name)) ;
     }
 
+    # Tells if a main target with the specified name exists.
+    rule has-main-target ( name )
+    {
+        if $(self.main-target.$(name)) 
+        {
+            return true ;
+        } 
+    }
 }
 class project-target : abstract-target ;
 
@@ -168,6 +176,8 @@ class main-target : abstract-target ;
 rule basic-target ( name : project
                     : sources * : requirements * : default-build * )
 {
+    import build-request ;
+
     abstract-target.__init__ $(name) : $(project) ;
 
     self.sources = $(sources) ;
@@ -189,46 +199,60 @@ rule basic-target ( name : project
         {
             # CONSIDER: I'm really not sure if this is correct...
             properties = [ build-request.expand $(self.default-build) ] ;
+            local result = ;
             for local p in $(properties)
             {
-                generate [ feature.split $(p) ] ;
+                result += [ generate [ feature.split $(p) ] ] ;
             }
-        }
+            return $(result) ;
+        } else {
 
-        local rproperties =
-            [ property.refine $(properties) : $(self.requirements) ] ;
-        if $(rproperties[1]) = "@error"
-        {
-            print.wrapped-text
-                "Cannot satisfy request to build" [ full-name ]
-                "with properties " $(properties) ;
-            print.wrapped-text
-                "Explanation:" $(rproperties[2-]) ;
-            EXIT ;
-        }
-        # TODO: issue a warning when requirements change properties, but
-        # link-compatibility is still not broken.
+            property-path = [ property.as-path $(properties) ] ;
+            if ! $(property-path) 
+            {
+                property-path = X ;
+            }
+            if ! $(self.generated.$(property-path)) 
+            {
+                local rproperties =
+                    [ property.refine $(properties) : $(self.requirements) ] ;
+                if $(rproperties[1]) = "@error"
+                {
+                    print.wrapped-text
+                        "Cannot satisfy request to build" [ full-name ]
+                        "with properties " $(properties) ;
+                    print.wrapped-text
+                        "Explanation:" $(rproperties[2-]) ;
+                    EXIT ;
+                 }
+                 # TODO: issue a warning when requirements change properties, but
+                 # link-compatibility is still not broken.
 
-        local source-targets ;
-        for local s in $(self.sources)
-        {
-            # This assumes property list never contain "@".
-            if [ MATCH .*@.* $(s) ]
-            {
-                # Reference to other main target
-                source-targets += [ generate-source $(s) $(properties) ] ;
-            }
-            else
-            {
-                # Just a source file
-                source-targets +=
-                    [ new virtual-target $(self.name) : $(self.project) ] ;
-            }
+                 local source-targets ;
+                 for local s in $(self.sources)
+                 {
+                    # Try treating this source as reference to main target
+                    local more-targets = [ generate-source $(s) : $(properties) ] ;
+                    if $(more-targets)
+                    {
+                        source-targets += $(more-targets) ;
+                    }
+                    else 
+                    {
+                        # Just a source file
+                        source-targets +=
+                            [ new virtual-target $(s) : $(self.project) ] ;
+                    }
+                }
+                self.generated.$(property-path) = 
+                    [ construct $(source-targets) : $(properties) ] ;                                                                                                                                        
+            }                
+            return $(self.generated.$(property-path)) ;
         }
-        return [ construct $(source-targets) : $(properties) ] ;
     }
 
     # Given a source specification, generates virtual targets for that source.
+    # If the source does not correspond to any main target, returns nothing.
     rule generate-source ( source : properties * )
     {
         # Separate target name from properties override
@@ -236,19 +260,21 @@ rule basic-target ( name : project
         local id = $(split[1]) ;
         local sproperties = $(split[2-]) ;
 
-        # Apply source-specific properties
-        local rproperties = [ property.refine $(properties) : $(sproperties) ] ;
-        if $(rproperties[1]) = "@error"
-        {
-            error
-                "When building" [ full-name ] " with properties " $(properties)
-                "Invalid properties specified for " $(source) ":"
-                $(rproperties[2-]) ;
+        # Check is such target exists
+        local main-target = [ project.find-target $(id) : [ $(self.project).location ] ] ;
+        
+        if $(main-target) {
+            # Apply source-specific properties
+            local rproperties = [ property.refine $(properties) : $(sproperties) ] ;
+            if $(rproperties[1]) = "@error"
+            {
+                error
+                    "When building" [ full-name ] " with properties " $(properties)
+                    "Invalid properties specified for " $(source) ":"
+                    $(rproperties[2-]) ;
+            }
+            return [ $(main-target).generate $(rproperties) ] ;        
         }
-
-        # Try to generate source
-        local target = [ project.find-target $(id) ] ;
-        return [ $(target).generate $(rproperties) ] ;
     }
 
     # Constructs the virtual targets for this abstract targets and
@@ -256,6 +282,7 @@ rule basic-target ( name : project
     # Should be overrided in derived classes.
     rule construct ( source-targets * : properties * )
     {
+        errors.error "method should be defined in derived classes" ;
     }
 
 }
@@ -264,7 +291,9 @@ class basic-target : abstract-target ;
 
 
 # Class which represents a virtual target
-rule virtual-target ( name : project : subvariant * )
+rule virtual-target ( name : project 
+                      : subvariant * # Property sets which define this subvariant
+                     )
 {
     self.name = $(name) ;
     self.subvariant = $(subvariant) ;
@@ -320,7 +349,6 @@ rule virtual-target ( name : project : subvariant * )
     # only because some other file in set is out-of-date.
     rule actualize ( )
     {
-        ECHO "Actualizing target $(self.name)" ;
         if ! $(self.actual-name) {
 
             self.actual-name = [ actual-name ] ;
@@ -335,8 +363,10 @@ rule virtual-target ( name : project : subvariant * )
                 $(a).actualize ;
                 local path = [ os.path.join [ $(self.project).location ] "bin" ] ;
                 path = [ os.path.native $(path) ] ;
-                MakeLocate $(self.actual-name) : $(path) ;
-
+                LOCATE on $(self.actual-name) = $(path) ;
+                DEPENDS $(self.actual-name) : $(path) ;
+                utility.MkDir $(path) ;
+                utility.Clean clean : $(self.actual-name) ;
             } else {
                 SEARCH on $(self.actual-name) =
                     [ os.path.native [ $(self.project).source-location ] ] ;
@@ -355,10 +385,13 @@ rule virtual-target ( name : project : subvariant * )
                 [ sequence.join [ regex.split $(project-location) "/" ] : "!" ] ;
             local property-grist =
                 [ property.as-path $(self.subvariant) ] ;
+            # Set empty value to avoid eating adjacent text
             local grist = $(location-grist)/$(property-grist) ;
+            if ! $(self.subvariant) {
+               grist = $(location-grist) ;
+            }
             self.actual-name = <$(grist)>$(self.name) ;
         }
-        ECHO "Actual name will be " $(self.actual-name) ;
         return $(self.actual-name) ;
     }
 }
diff --git a/new/utility.jam b/new/utility.jam
index 018bb70a8..fbdc2997f 100644
--- a/new/utility.jam
+++ b/new/utility.jam
@@ -26,6 +26,63 @@ rule caller-file ( )
     return $(bt[9]) ;
 }
 
+rule MkDir
+{
+    # If dir exists, don't update it
+    # Do this even for $(DOT).
+
+    NOUPDATE $(<) ;
+
+    if $(<) != $(DOT) && ! $($(<)-mkdir)
+    {
+        local s ;
+
+        # Cheesy gate to prevent multiple invocations on same dir
+        # MkDir1 has the actions
+        # Arrange for jam dirs
+
+        $(<)-mkdir = true ;
+        MkDir1 $(<) ;
+        Depends dirs : $(<) ;
+
+        # Recursively make parent directories.
+        # $(<:P) = $(<)'s parent, & we recurse until root
+
+        s = $(<:P) ;
+
+        if $(NT)
+        {
+            switch $(s)
+        {
+        case *:   : s = ;
+        case *:\\ : s = ;
+        }
+        }
+
+        if $(s) && $(s) != $(<)
+        {
+        Depends $(<) : $(s) ;
+        MkDir $(s) ;
+        }
+        else if $(s)
+        {
+            NOTFILE $(s) ;
+        }
+
+    }
+}
+
+actions MkDir1
+{
+    mkdir $(<)
+}
+
+actions piecemeal together existing Clean
+{
+    rm $(>)
+}
+
+
 local rule __test__ ( )
 {
     import assert ;
diff --git a/test/project-test3/Jamfile b/test/project-test3/Jamfile
new file mode 100644
index 000000000..57d62c97b
--- /dev/null
+++ b/test/project-test3/Jamfile
@@ -0,0 +1,3 @@
+
+make a.exe : a.obj : yfc-link ;
+make a.obj : a.cpp : yfc-compile ; 
\ No newline at end of file
diff --git a/test/project-test3/a.cpp b/test/project-test3/a.cpp
new file mode 100644
index 000000000..e69de29bb
diff --git a/test/project-test3/project-root.jam b/test/project-test3/project-root.jam
new file mode 100644
index 000000000..a6f85e166
--- /dev/null
+++ b/test/project-test3/project-root.jam
@@ -0,0 +1,27 @@
+
+import property ;
+
+rule yfc-compile ( target : sources * : property-set * )
+{
+    PROPERTIES on $(target) = [ property.as-path $(property-set) ] ;
+}
+
+actions yfc-compile
+{
+    echo $(PROPERTIES) > $(<)
+    echo $(>) >> $(<)
+}
+
+rule yfc-link ( target : sources * : property-set * )
+{
+    PROPERTIES on $(target) = [ property.as-path $(property-set) ] ;
+}
+
+actions yfc-link
+{
+    echo $(PROPERTIES) > $(<)
+    echo $(>) >> $(<)
+}
+
+
+IMPORT $(__name__) : yfc-compile yfc-link : : yfc-compile yfc-link ;
diff --git a/test/project_test3.py b/test/project_test3.py
new file mode 100644
index 000000000..83f296bb2
--- /dev/null
+++ b/test/project_test3.py
@@ -0,0 +1,27 @@
+#!/usr/bin/python
+
+from BoostBuild import Tester
+import os
+from string import strip
+
+t = Tester()
+t.set_tree("project-test3")
+
+
+t.run_build_system()
+
+t.expect_addition("bin/a.obj")
+t.fail_test(t.read("bin/a.obj") != \
+"""variant-debug/optimization-off
+a.cpp
+""")
+
+t.expect_addition("bin/a.exe")
+t.fail_test(t.read("bin/a.exe") != \
+"""variant-debug/optimization-off
+bin/a.obj
+""")
+
+t.touch("a.cpp")
+t.run_build_system()
+t.expect_touch(["bin/a.obj", "bin/a.exe"])
diff --git a/test/test_all.py b/test/test_all.py
index e94988041..8a91a40d2 100644
--- a/test/test_all.py
+++ b/test/test_all.py
@@ -17,3 +17,4 @@ import startup_v1
 import startup_v2
 import project_test1
 import project_test2
+import project_test3
\ No newline at end of file
diff --git a/v2/build/project.jam b/v2/build/project.jam
index 73c33d7f7..7d575cfa5 100644
--- a/v2/build/project.jam
+++ b/v2/build/project.jam
@@ -54,7 +54,7 @@ rule load ( jamfile-location )
 }
 
 #
-#   Returns the name of project module given its id.
+#   Returns the project location given its id.
 #   Projects can be referred using path@project-id notation. In it, 'path'
 #   selects jamfile location relatively to 'current-location' and 'project-id'
 #   names project relatively to the selected jamfile.
@@ -91,30 +91,75 @@ rule lookup ( id : current-location )
         }
 
         local module-name = [ module-name $(location) ] ;
-        local base-id = [ $(module-name).id ] ;
 
-        if ! $(base-id)
+        if ! $(project-id)
         {
-            error "Project in $(location) has no project id" ;
+            return [ $(module-name).location ] ;
         }
+        else 
+        {
+            local base-id = [ $(module-name).id ] ;
 
-        if $(project-id)
-        {
-            local rooted-id = $(base-id)/$(project-id) ;
-            return $($(rooted-id).jamfile-location) ;
-        }
-        else
-        {
-            return $($(base-id).jamfile-location) ;
-        }
+            if ! $(base-id)
+            {
+                error "Project in $(location) has no project id" ;
+            }
+            else
+            {
+                local rooted-id = $(base-id)/$(project-id) ;
+                return $($(rooted-id).jamfile-location) ;
+            }
+       }     
     }
 }
 
 # Given an 'id' for a target, return an instance of 'main-target' that
-# corresponds to it.
+# corresponds to it. If there's no such main-target, returns empty string.
 rule find-target ( id : current-location )
 {
-    error "Not yet implemented" ;
+    # Find the project first          
+    local project-id ;
+    local target-id ;
+    local explicit ;
+    if [ MATCH (.*)@(.*) : $(id)  ] 
+    {
+        explicit = 1 ;
+        # Take the last "/" separated component after "@" as target id.
+        local split = [ MATCH (.*@(.*/)*)([^/]*) : $(id) ] ;
+        project-id = $(split[1]) ;
+        target-id = $(split[3]) ;
+    }
+    else
+    {
+        # This is not @-id. Treat it as path -- the last "/" separated component
+        # is target id, everything else denote project location.
+        local split = [ MATCH ((.*/)*)([^/]*) : $(id) ] ;
+        if $(split[1]) 
+        {
+                project-id = $(split[1])@ ;        
+        }
+        else
+        {
+                project-id = @ ;
+        }
+        target-id = $(split[3]) ;
+    }
+    local location = [ lookup $(project-id) : $(current-location) ] ;
+    if $(location) {
+        local project-module = [ module-name $(location) ] ;
+        local project-target = [ $(project-module).target ] ;
+        if [ $(project-target).has-main-target $(target-id) ] 
+        {
+            return [ $(project-target).main-target $(target-id) ] ;
+        }
+    } 
+    else if $(explicit)
+    {
+        print.wrapped-text 
+            "The target id" $(id) " specified by project at" $(current-location)
+            "is invalid" ;
+        EXIT ;
+    }
 }
 
 rule project ( id ? : option1 * : option2 * : option3 * )
@@ -401,7 +446,7 @@ module project-rules {
         import class : new ;
         if ! $(__target__)
         {
-            __target__ = [ new project-target "<project>" : $(__name__) ] ;
+            __target__ = [ new project-target $(__name__) : $(__name__) ] ;
         }
         return $(__target__) ;
     }
diff --git a/v2/build/targets.jam b/v2/build/targets.jam
index 32a610d09..174b0b9bc 100644
--- a/v2/build/targets.jam
+++ b/v2/build/targets.jam
@@ -105,11 +105,19 @@ rule project-target ( name : project : requirements * : default-build * )
         {
             self.main-targets += $(name) ;
             self.main-target.$(name) =
-                [ new main-target $(self.name) : $(self.project) ] ;
+                [ new main-target $(name) : $(self.project) ] ;
         }
         return $(self.main-target.$(name)) ;
     }
 
+    # Tells if a main target with the specified name exists.
+    rule has-main-target ( name )
+    {
+        if $(self.main-target.$(name)) 
+        {
+            return true ;
+        } 
+    }
 }
 class project-target : abstract-target ;
 
@@ -168,6 +176,8 @@ class main-target : abstract-target ;
 rule basic-target ( name : project
                     : sources * : requirements * : default-build * )
 {
+    import build-request ;
+
     abstract-target.__init__ $(name) : $(project) ;
 
     self.sources = $(sources) ;
@@ -189,46 +199,60 @@ rule basic-target ( name : project
         {
             # CONSIDER: I'm really not sure if this is correct...
             properties = [ build-request.expand $(self.default-build) ] ;
+            local result = ;
             for local p in $(properties)
             {
-                generate [ feature.split $(p) ] ;
+                result += [ generate [ feature.split $(p) ] ] ;
             }
-        }
+            return $(result) ;
+        } else {
 
-        local rproperties =
-            [ property.refine $(properties) : $(self.requirements) ] ;
-        if $(rproperties[1]) = "@error"
-        {
-            print.wrapped-text
-                "Cannot satisfy request to build" [ full-name ]
-                "with properties " $(properties) ;
-            print.wrapped-text
-                "Explanation:" $(rproperties[2-]) ;
-            EXIT ;
-        }
-        # TODO: issue a warning when requirements change properties, but
-        # link-compatibility is still not broken.
+            property-path = [ property.as-path $(properties) ] ;
+            if ! $(property-path) 
+            {
+                property-path = X ;
+            }
+            if ! $(self.generated.$(property-path)) 
+            {
+                local rproperties =
+                    [ property.refine $(properties) : $(self.requirements) ] ;
+                if $(rproperties[1]) = "@error"
+                {
+                    print.wrapped-text
+                        "Cannot satisfy request to build" [ full-name ]
+                        "with properties " $(properties) ;
+                    print.wrapped-text
+                        "Explanation:" $(rproperties[2-]) ;
+                    EXIT ;
+                 }
+                 # TODO: issue a warning when requirements change properties, but
+                 # link-compatibility is still not broken.
 
-        local source-targets ;
-        for local s in $(self.sources)
-        {
-            # This assumes property list never contain "@".
-            if [ MATCH .*@.* $(s) ]
-            {
-                # Reference to other main target
-                source-targets += [ generate-source $(s) $(properties) ] ;
-            }
-            else
-            {
-                # Just a source file
-                source-targets +=
-                    [ new virtual-target $(self.name) : $(self.project) ] ;
-            }
+                 local source-targets ;
+                 for local s in $(self.sources)
+                 {
+                    # Try treating this source as reference to main target
+                    local more-targets = [ generate-source $(s) : $(properties) ] ;
+                    if $(more-targets)
+                    {
+                        source-targets += $(more-targets) ;
+                    }
+                    else 
+                    {
+                        # Just a source file
+                        source-targets +=
+                            [ new virtual-target $(s) : $(self.project) ] ;
+                    }
+                }
+                self.generated.$(property-path) = 
+                    [ construct $(source-targets) : $(properties) ] ;                                                                                                                                        
+            }                
+            return $(self.generated.$(property-path)) ;
         }
-        return [ construct $(source-targets) : $(properties) ] ;
     }
 
     # Given a source specification, generates virtual targets for that source.
+    # If the source does not correspond to any main target, returns nothing.
     rule generate-source ( source : properties * )
     {
         # Separate target name from properties override
@@ -236,19 +260,21 @@ rule basic-target ( name : project
         local id = $(split[1]) ;
         local sproperties = $(split[2-]) ;
 
-        # Apply source-specific properties
-        local rproperties = [ property.refine $(properties) : $(sproperties) ] ;
-        if $(rproperties[1]) = "@error"
-        {
-            error
-                "When building" [ full-name ] " with properties " $(properties)
-                "Invalid properties specified for " $(source) ":"
-                $(rproperties[2-]) ;
+        # Check is such target exists
+        local main-target = [ project.find-target $(id) : [ $(self.project).location ] ] ;
+        
+        if $(main-target) {
+            # Apply source-specific properties
+            local rproperties = [ property.refine $(properties) : $(sproperties) ] ;
+            if $(rproperties[1]) = "@error"
+            {
+                error
+                    "When building" [ full-name ] " with properties " $(properties)
+                    "Invalid properties specified for " $(source) ":"
+                    $(rproperties[2-]) ;
+            }
+            return [ $(main-target).generate $(rproperties) ] ;        
         }
-
-        # Try to generate source
-        local target = [ project.find-target $(id) ] ;
-        return [ $(target).generate $(rproperties) ] ;
     }
 
     # Constructs the virtual targets for this abstract targets and
@@ -256,6 +282,7 @@ rule basic-target ( name : project
     # Should be overrided in derived classes.
     rule construct ( source-targets * : properties * )
     {
+        errors.error "method should be defined in derived classes" ;
     }
 
 }
@@ -264,7 +291,9 @@ class basic-target : abstract-target ;
 
 
 # Class which represents a virtual target
-rule virtual-target ( name : project : subvariant * )
+rule virtual-target ( name : project 
+                      : subvariant * # Property sets which define this subvariant
+                     )
 {
     self.name = $(name) ;
     self.subvariant = $(subvariant) ;
@@ -320,7 +349,6 @@ rule virtual-target ( name : project : subvariant * )
     # only because some other file in set is out-of-date.
     rule actualize ( )
     {
-        ECHO "Actualizing target $(self.name)" ;
         if ! $(self.actual-name) {
 
             self.actual-name = [ actual-name ] ;
@@ -335,8 +363,10 @@ rule virtual-target ( name : project : subvariant * )
                 $(a).actualize ;
                 local path = [ os.path.join [ $(self.project).location ] "bin" ] ;
                 path = [ os.path.native $(path) ] ;
-                MakeLocate $(self.actual-name) : $(path) ;
-
+                LOCATE on $(self.actual-name) = $(path) ;
+                DEPENDS $(self.actual-name) : $(path) ;
+                utility.MkDir $(path) ;
+                utility.Clean clean : $(self.actual-name) ;
             } else {
                 SEARCH on $(self.actual-name) =
                     [ os.path.native [ $(self.project).source-location ] ] ;
@@ -355,10 +385,13 @@ rule virtual-target ( name : project : subvariant * )
                 [ sequence.join [ regex.split $(project-location) "/" ] : "!" ] ;
             local property-grist =
                 [ property.as-path $(self.subvariant) ] ;
+            # Set empty value to avoid eating adjacent text
             local grist = $(location-grist)/$(property-grist) ;
+            if ! $(self.subvariant) {
+               grist = $(location-grist) ;
+            }
             self.actual-name = <$(grist)>$(self.name) ;
         }
-        ECHO "Actual name will be " $(self.actual-name) ;
         return $(self.actual-name) ;
     }
 }
diff --git a/v2/test/project-test3/Jamfile b/v2/test/project-test3/Jamfile
new file mode 100644
index 000000000..57d62c97b
--- /dev/null
+++ b/v2/test/project-test3/Jamfile
@@ -0,0 +1,3 @@
+
+make a.exe : a.obj : yfc-link ;
+make a.obj : a.cpp : yfc-compile ; 
\ No newline at end of file
diff --git a/v2/test/project-test3/a.cpp b/v2/test/project-test3/a.cpp
new file mode 100644
index 000000000..e69de29bb
diff --git a/v2/test/project-test3/project-root.jam b/v2/test/project-test3/project-root.jam
new file mode 100644
index 000000000..a6f85e166
--- /dev/null
+++ b/v2/test/project-test3/project-root.jam
@@ -0,0 +1,27 @@
+
+import property ;
+
+rule yfc-compile ( target : sources * : property-set * )
+{
+    PROPERTIES on $(target) = [ property.as-path $(property-set) ] ;
+}
+
+actions yfc-compile
+{
+    echo $(PROPERTIES) > $(<)
+    echo $(>) >> $(<)
+}
+
+rule yfc-link ( target : sources * : property-set * )
+{
+    PROPERTIES on $(target) = [ property.as-path $(property-set) ] ;
+}
+
+actions yfc-link
+{
+    echo $(PROPERTIES) > $(<)
+    echo $(>) >> $(<)
+}
+
+
+IMPORT $(__name__) : yfc-compile yfc-link : : yfc-compile yfc-link ;
diff --git a/v2/test/project_test3.py b/v2/test/project_test3.py
new file mode 100644
index 000000000..83f296bb2
--- /dev/null
+++ b/v2/test/project_test3.py
@@ -0,0 +1,27 @@
+#!/usr/bin/python
+
+from BoostBuild import Tester
+import os
+from string import strip
+
+t = Tester()
+t.set_tree("project-test3")
+
+
+t.run_build_system()
+
+t.expect_addition("bin/a.obj")
+t.fail_test(t.read("bin/a.obj") != \
+"""variant-debug/optimization-off
+a.cpp
+""")
+
+t.expect_addition("bin/a.exe")
+t.fail_test(t.read("bin/a.exe") != \
+"""variant-debug/optimization-off
+bin/a.obj
+""")
+
+t.touch("a.cpp")
+t.run_build_system()
+t.expect_touch(["bin/a.obj", "bin/a.exe"])
diff --git a/v2/test/test_all.py b/v2/test/test_all.py
index e94988041..8a91a40d2 100644
--- a/v2/test/test_all.py
+++ b/v2/test/test_all.py
@@ -17,3 +17,4 @@ import startup_v1
 import startup_v2
 import project_test1
 import project_test2
+import project_test3
\ No newline at end of file
diff --git a/v2/tools/builtin.jam b/v2/tools/builtin.jam
new file mode 100644
index 000000000..ffca7fdd1
--- /dev/null
+++ b/v2/tools/builtin.jam
@@ -0,0 +1,17 @@
+#  Copyright (C) Vladimir Prus 2002. Permission to copy, use, modify, sell and
+#  distribute this software is granted provided this copyright notice appears in
+#  all copies. This software is provided "as is" without express or implied
+#  warranty, and with no claim as to its suitability for any purpose.
+
+#  Defines standard features and rules.
+
+import feature : feature compose ;
+
+feature toolset : gcc : implicit ;
+feature optimization : off on ;
+
+feature variant : debug release : implicit composite ;
+compose <variant>debug : <optimization>off ;
+compose <variant>release : <optimization>on ;
+
+
diff --git a/v2/tools/make.jam b/v2/tools/make.jam
new file mode 100644
index 000000000..90999ed77
--- /dev/null
+++ b/v2/tools/make.jam
@@ -0,0 +1,47 @@
+#  Copyright (C) Vladimir Prus 2002. Permission to copy, use, modify, sell and
+#  distribute this software is granted provided this copyright notice appears in
+#  all copies. This software is provided "as is" without express or implied
+#  warranty, and with no claim as to its suitability for any purpose.
+
+#  This module defines the 'make' rule and associated class, derived from
+#  'basic-target'.  
+
+import targets ;
+import class : class new ;
+
+rule make-target-class ( name : project : sources * : requirements * 
+                         : make-rule + : default-build )
+{
+    basic-target.__init__ $(name) : $(project) : $(sources) : $(requirements) 
+                          : $(default-build) ;
+    self.make-rule = $(make-rule) ;    
+    
+    rule construct ( source-targets * : properties * )
+    {
+        local t = [ new virtual-target $(self.name)
+                    : $(self.project) : $(properties) ] ;
+        local a = [ new action $(t) : $(source-targets) : $(self.make-rule) 
+                    : $(properties) ] ;
+        $(t).action $(a) ;
+        return $(t) ;    
+    }   
+}
+
+class make-target-class : basic-target ;
+
+rule make ( target-name : sources * : generating-rule : requirements * )
+{
+    local project = [ CALLER_MODULE ] ;
+    local ptarget = [ $(project).target ] ;
+    local default-build = [ $(project).default-build ] ;
+
+    local target = [ $(ptarget).main-target $(target-name) ] ;
+
+    $(target).add-variant
+        [ new make-target-class $(target-name) : $(project) : $(sources) : $(requirements) 
+          : $(generating-rule) : $(default-build) ] ;
+}
+
+IMPORT $(__name__) : make : : make ;
+
+
diff --git a/v2/util/utility.jam b/v2/util/utility.jam
index 018bb70a8..fbdc2997f 100644
--- a/v2/util/utility.jam
+++ b/v2/util/utility.jam
@@ -26,6 +26,63 @@ rule caller-file ( )
     return $(bt[9]) ;
 }
 
+rule MkDir
+{
+    # If dir exists, don't update it
+    # Do this even for $(DOT).
+
+    NOUPDATE $(<) ;
+
+    if $(<) != $(DOT) && ! $($(<)-mkdir)
+    {
+        local s ;
+
+        # Cheesy gate to prevent multiple invocations on same dir
+        # MkDir1 has the actions
+        # Arrange for jam dirs
+
+        $(<)-mkdir = true ;
+        MkDir1 $(<) ;
+        Depends dirs : $(<) ;
+
+        # Recursively make parent directories.
+        # $(<:P) = $(<)'s parent, & we recurse until root
+
+        s = $(<:P) ;
+
+        if $(NT)
+        {
+            switch $(s)
+        {
+        case *:   : s = ;
+        case *:\\ : s = ;
+        }
+        }
+
+        if $(s) && $(s) != $(<)
+        {
+        Depends $(<) : $(s) ;
+        MkDir $(s) ;
+        }
+        else if $(s)
+        {
+            NOTFILE $(s) ;
+        }
+
+    }
+}
+
+actions MkDir1
+{
+    mkdir $(<)
+}
+
+actions piecemeal together existing Clean
+{
+    rm $(>)
+}
+
+
 local rule __test__ ( )
 {
     import assert ;