diff --git a/README.md b/README.md
new file mode 100644
index 0000000000..7073f67db7
--- /dev/null
+++ b/README.md
@@ -0,0 +1,3 @@
+# svelte
+
+Coming soon...
diff --git a/compiler/generate/index.js b/compiler/generate/index.js
index 50d83e9b42..f8fde71546 100644
--- a/compiler/generate/index.js
+++ b/compiler/generate/index.js
@@ -1,7 +1,133 @@
+import deindent from 'deindent';
+import walkHtml from './walkHtml.js';
+
 export default function generate ( parsed ) {
-	return `
+	const counters = {
+		element: 0,
+		text: 0,
+		anchor: 0
+	};
+
+	const renderBlocks = [];
+	const updateBlocks = [];
+	const teardownBlocks = [];
+
+	const codeBlocks = [];
+
+	// TODO add contents of <script> tag, with `export default` replaced with `var template =`
+	// TODO css
+
+	// create component
+
+	parsed.html.children.forEach( child => {
+		let currentElement = 'options.target';
+		const elementStack = [ currentElement ];
+
+		walkHtml( child, {
+			enter ( node ) {
+				if ( node.type === 'Element' ) {
+					currentElement = `element_${counters.element++}`;
+
+					const renderBlock = deindent`
+						var ${currentElement} = document.createElement( '${node.name}' );
+						options.target.appendChild( ${currentElement} );
+					`;
+
+					renderBlocks.push( renderBlock );
+
+					// updateBlocks.push( deindent`
+					//
+					// ` );
+
+					teardownBlocks.push( deindent`
+						${currentElement}.parentNode.removeChild( ${currentElement} );
+					` );
+				}
+
+				else if ( node.type === 'Text' ) {
+					renderBlocks.push( deindent`
+						${currentElement}.appendChild( document.createTextNode( ${JSON.stringify( node.data )} ) );
+					` );
+				}
+
+				else {
+					throw new Error( `Not implemented: ${node.type}` );
+				}
+			},
+
+			leave ( node ) {
+				if ( node.type === 'Element' ) {
+					elementStack.pop();
+					currentElement = elementStack[ elementStack.length - 1 ];
+				}
+			}
+		});
+	});
+
+	const code = deindent`
 		export default function createComponent ( options ) {
-			console.log( 'TODO' );
+			var component = {};
+			var state = {};
+
+			var observers = {
+				immediate: Object.create( null ),
+				deferred: Object.create( null )
+			};
+
+			// universal methods
+			function dispatchObservers ( group, state, oldState ) {
+				for ( const key in group ) {
+					const newValue = state[ key ];
+					const oldValue = oldState[ key ];
+
+					if ( newValue === oldValue && typeof newValue !== 'object' ) continue;
+
+					const callbacks = group[ key ];
+					if ( !callbacks ) continue;
+
+					for ( let i = 0; i < callbacks.length; i += 1 ) {
+						callbacks[i].call( component, newValue, oldValue );
+					}
+				}
+			}
+
+			component.get = function get ( key ) {
+				return state[ key ];
+			};
+
+			component.set = function set ( newState ) {
+				const oldState = state;
+				state = Object.assign( {}, oldState, newState );
+
+				${updateBlocks.join( '\n\n' )}
+			};
+
+			component.observe = function ( key, callback, options = {} ) {
+				const group = options.defer ? observers.deferred : observers.immediate;
+
+				( group[ key ] || ( group[ key ] = [] ) ).push( callback );
+				if ( options.init !== false ) callback( state[ key ] );
+
+				return {
+					cancel () {
+						const index = group[ key ].indexOf( callback );
+						if ( ~index ) group[ key ].splice( index, 1 );
+					}
+				};
+			};
+
+			component.teardown = function teardown () {
+				${teardownBlocks.join( '\n\n' )}
+				state = {};
+			};
+
+			${renderBlocks.join( '\n\n' )}
+
+			component.set( options.data );
+
+			return component;
 		}
-	`;
+	`.trim();
+
+	return { code };
 }
diff --git a/compiler/generate/walkHtml.js b/compiler/generate/walkHtml.js
new file mode 100644
index 0000000000..8cfbbb031a
--- /dev/null
+++ b/compiler/generate/walkHtml.js
@@ -0,0 +1,15 @@
+export default function walkHtml ( html, { enter, leave } ) {
+	function visit ( node ) {
+		enter( node );
+
+		if ( node.children ) {
+			node.children.forEach( child => {
+				visit( child );
+			});
+		}
+
+		leave( node );
+	}
+
+	visit( html );
+}
diff --git a/compiler/parse/__test__.js b/compiler/parse/__test__.js
index 8ab9ce573a..7ba407bb49 100644
--- a/compiler/parse/__test__.js
+++ b/compiler/parse/__test__.js
@@ -6,30 +6,106 @@ describe( 'parse', () => {
 		assert.equal( typeof parse, 'function' );
 	});
 
-	it( 'parses a single element', () => {
+	it( 'parses a self-closing element', () => {
+		const template = '<div/>';
+
+		assert.deepEqual( parse( template ), {
+			html: {
+				start: 0,
+				end: 6,
+				type: 'Fragment',
+				children: [
+					{
+						start: 0,
+						end: 6,
+						type: 'Element',
+						name: 'div',
+						attributes: [],
+						children: []
+					}
+				]
+			},
+			css: null,
+			js: null
+		});
+	});
+
+	it( 'parses an element with text', () => {
 		const template = `<span>test</span>`;
 
 		assert.deepEqual( parse( template ), {
-			start: 0,
-			end: 17,
-			type: 'Fragment',
-			children: [
-				{
-					start: 0,
-					end: 17,
-					type: 'Element',
-					name: 'span',
-					attributes: {},
-					children: [
-						{
-							start: 6,
-							end: 10,
-							type: 'Text',
-							data: 'test'
-						}
-					]
-				}
-			]
+			html: {
+				start: 0,
+				end: 17,
+				type: 'Fragment',
+				children: [
+					{
+						start: 0,
+						end: 17,
+						type: 'Element',
+						name: 'span',
+						attributes: [],
+						children: [
+							{
+								start: 6,
+								end: 10,
+								type: 'Text',
+								data: 'test'
+							}
+						]
+					}
+				]
+			},
+			css: null,
+			js: null
+		});
+	});
+
+	it( 'parses an element with a mustache tag', () => {
+		const template = `<h1>hello {{name}}!</h1>`;
+
+		assert.deepEqual( parse( template ), {
+			html: {
+				start: 0,
+				end: 24,
+				type: 'Fragment',
+				children: [
+					{
+						start: 0,
+						end: 24,
+						type: 'Element',
+						name: 'h1',
+						attributes: [],
+						children: [
+							{
+								start: 4,
+								end: 10,
+								type: 'Text',
+								data: 'hello '
+							},
+							{
+								start: 10,
+								end: 18,
+								type: 'MustacheTag',
+								expression: {
+									start: 12,
+									end: 16,
+									type: 'Identifier',
+									name: 'name'
+								}
+							},
+							{
+								start: 18,
+								end: 19,
+								type: 'Text',
+								data: '!'
+							}
+						]
+					}
+				]
+			},
+			css: null,
+			js: null
 		});
 	});
 });
diff --git a/compiler/parse/index.js b/compiler/parse/index.js
index 79853d968f..59500fe388 100644
--- a/compiler/parse/index.js
+++ b/compiler/parse/index.js
@@ -1,41 +1,72 @@
+import { parseExpressionAt } from 'acorn';
 import { locate } from 'locate-character';
 
-const validNameChar = /[a-zA-Z0-9_$]/;
+const validTagName = /^[a-zA-Z]{1,}:?[a-zA-Z0-9\-]*/;
+const voidElementNames = /^(?:area|base|br|col|command|doctype|embed|hr|img|input|keygen|link|meta|param|source|track|wbr)$/i;
+const whitespace = /\s/;
 
 export default function parse ( template ) {
-	let i = 0;
+	const parser = {
+		index: 0,
+		template,
+		stack: [],
+
+		current () {
+			return this.stack[ this.stack.length - 1 ];
+		},
+
+		error ( message ) {
+			const { line, column } = locate( this.template, this.index );
+			throw new Error( `${message} (${line}:${column})` );
+		},
+
+		eat ( str ) {
+			if ( this.match( str ) ) {
+				this.index += str.length;
+				return true;
+			}
+		},
+
+		match ( str ) {
+			return this.template.slice( this.index, this.index + str.length ) === str;
+		},
+
+		allowWhitespace () {
+			while ( this.index < this.template.length && whitespace.test( this.template[ this.index ] ) ) {
+				this.index++;
+			}
+		},
+
+		readUntil ( pattern ) {
+			const match = pattern.exec( this.template.slice( this.index ) );
+			return this.template.slice( this.index, match ? ( this.index += match.index ) : this.template.length );
+		},
+
+		remaining () {
+			return this.template.slice( this.index );
+		}
+	};
 
-	const root = {
+	const html = {
 		start: 0,
 		end: template.length,
 		type: 'Fragment',
 		children: []
 	};
 
-	const stack = [ root ];
-	let current = root;
+	let css = null;
+	let js = null;
 
-	function error ( message ) {
-		const { line, column } = locate( template, i );
-		throw new Error( `${message} (${line}:${column})` );
-	}
-
-	function match ( str ) {
-		return template.slice( i, i + str.length ) === str;
-	}
+	parser.stack.push( html );
 
 	function fragment () {
-		const char = template[i];
+		parser.allowWhitespace();
 
-		while ( char === ' ' ) {
-			i += 1;
-		}
-
-		if ( char === '<' ) {
+		if ( parser.match( '<' ) ) {
 			return tag;
 		}
 
-		if ( match( '{{' ) ) {
+		if ( parser.match( '{{' ) ) {
 			return mustache;
 		}
 
@@ -43,72 +74,210 @@ export default function parse ( template ) {
 	}
 
 	function tag () {
-		const start = i++;
-		let char = template[ i ];
+		const start = parser.index++;
 
-		const isClosingTag = char === '/';
-
-		if ( isClosingTag ) {
-			// this is a closing tag
-			i += 1;
-			char = template[ i ];
-		}
+		const isClosingTag = parser.eat( '/' );
 
 		// TODO handle cases like <li>one<li>two
 
-		let name = '';
-
-		while ( validNameChar.test( char ) ) {
-			name += char;
-			i += 1;
-			char = template[i];
-		}
+		const name = readTagName();
 
 		if ( isClosingTag ) {
-			if ( char !== '>' ) error( `Expected '>'` );
+			if ( !parser.eat( '>' ) ) parser.error( `Expected '>'` );
 
-			i += 1;
-			current.end = i;
-			stack.pop();
-			current = stack[ stack.length - 1 ];
+			parser.current().end = parser.index;
+			parser.stack.pop();
 
 			return fragment;
 		}
 
+		const attributes = [];
+
+		let attribute;
+		while ( attribute = readAttribute() ) {
+			attributes.push( attribute );
+		}
+
+		parser.allowWhitespace();
+
 		const element = {
 			start,
 			end: null, // filled in later
 			type: 'Element',
 			name,
-			attributes: {},
+			attributes,
 			children: []
 		};
 
-		current.children.push( element );
-		stack.push( element );
+		parser.current().children.push( element );
 
-		current = element;
+		const selfClosing = parser.eat( '/' ) || voidElementNames.test( name );
 
-		if ( char === '>' ) {
-			i += 1;
-			return fragment;
+		if ( !parser.eat( '>' ) ) {
+			parser.error( `Expected >` );
 		}
 
-		return attributes;
+		if ( selfClosing ) {
+			element.end = parser.index;
+		} else {
+			// don't push self-closing elements onto the stack
+			parser.stack.push( element );
+		}
+
+		return fragment;
+	}
+
+	function readTagName () {
+		const start = parser.index;
+
+		const name = parser.readUntil( /(\s|\/|>)/ );
+		if ( !validTagName.test( name ) ) {
+			parser.error( `Expected valid tag name`, start );
+		}
+
+		return name;
+	}
+
+	function readAttribute () {
+		const name = parser.readUntil( /(\s|=|\/|>)/ );
+		if ( !name ) return null;
+
+		parser.allowWhitespace();
+
+		const value = parser.eat( '=' ) ? readAttributeValue() : true;
+
+		return { name, value };
+	}
+
+	function readAttributeValue () {
+		if ( parser.eat( `'` ) ) return readQuotedAttributeValue( `'` );
+		if ( parser.eat( `"` ) ) return readQuotedAttributeValue( `"` );
+
+		parser.error( `TODO unquoted attribute values` );
+	}
+
+	function readQuotedAttributeValue ( quoteMark ) {
+		let currentChunk = {
+			start: parser.index,
+			end: null,
+			type: 'AttributeText',
+			data: ''
+		};
+
+		let escaped = false;
+
+		const chunks = [];
+
+		while ( parser.index < parser.template.length ) {
+			if ( escaped ) {
+				currentChunk.data += parser.template[ parser.index++ ];
+			}
+
+			else {
+				if ( parser.match( '{{' ) ) {
+					const index = parser.index;
+					currentChunk.end = index;
+
+					if ( currentChunk.data ) {
+						chunks.push( currentChunk );
+					}
+
+					const expression = readExpression();
+					parser.allowWhitespace();
+					if ( !parser.eat( '}}' ) ) {
+						parser.error( `Expected }}` );
+					}
+
+					chunks.push({
+						start: index,
+						end: parser.index,
+						type: 'MustacheTag',
+						expression
+					});
+
+					currentChunk = {
+						start: parser.index,
+						end: null,
+						type: 'AttributeText',
+						data: ''
+					};
+				}
+
+				else if ( parser.match( '\\' ) ) {
+					escaped = true;
+				}
+
+				else if ( parser.match( quoteMark ) ) {
+					if ( currentChunk.data ) {
+						chunks.push( currentChunk );
+						return chunks;
+					}
+				}
+			}
+		}
+
+		parser.error( `Unexpected end of input` );
+	}
+
+	function mustache () {
+		const start = parser.index;
+		parser.index += 2;
+
+		parser.allowWhitespace();
+
+		if ( parser.match( '#if' ) ) {
+			return ifBlock;
+		}
+
+		if ( parser.match( '#each' ) ) {
+			return eachBlock;
+		}
+
+		const expression = readExpression( template, parser.index );
+
+		parser.allowWhitespace();
+		if ( !parser.eat( '}}' ) ) parser.error( `Expected }}` );
+
+		parser.current().children.push({
+			start,
+			end: parser.index,
+			type: 'MustacheTag',
+			expression
+		});
+
+		return fragment;
+	}
+
+	function ifBlock () {
+		throw new Error( 'TODO' );
+	}
+
+	function eachBlock () {
+		throw new Error( 'TODO' );
+	}
+
+	function readExpression () {
+		const node = parseExpressionAt( parser.template, parser.index );
+		parser.index = node.end;
+
+		// TODO check it's a valid expression. probably shouldn't have
+		// [arrow] function expressions, etc
+
+		return node;
 	}
 
 	function text () {
-		const start = i;
+		const start = parser.index;
 
 		let data = '';
 
-		while ( i < template.length && template[i] !== '<' && !match( '{{' ) ) {
-			data += template[ i++ ];
+		while ( !parser.match( '<' ) && !parser.match( '{{' ) ) {
+			data += template[ parser.index++ ];
 		}
 
-		current.children.push({
+		parser.current().children.push({
 			start,
-			end: i,
+			end: parser.index,
 			type: 'Text',
 			data
 		});
@@ -116,19 +285,11 @@ export default function parse ( template ) {
 		return fragment;
 	}
 
-	function attributes () {
-		const char = template[i];
-		if ( char === '>' ) {
-			i += 1;
-			return fragment;
-		}
-	}
-
 	let state = fragment;
 
-	while ( i < template.length ) {
+	while ( parser.index < parser.template.length ) {
 		state = state();
 	}
 
-	return root;
+	return { html, css, js };
 }
diff --git a/package.json b/package.json
index c9620036c7..930a93d8cb 100644
--- a/package.json
+++ b/package.json
@@ -1,6 +1,6 @@
 {
   "name": "svelte",
-  "version": "1.0.0",
+  "version": "0.0.1",
   "description": "The frameworkless UI framework",
   "main": "dist/svelte-compiler.js",
   "scripts": {
@@ -31,6 +31,8 @@
     "reify": "^0.4.0"
   },
   "dependencies": {
+    "acorn": "^4.0.3",
+    "deindent": "^0.1.0",
     "locate-character": "^2.0.0"
   }
 }
diff --git a/test/test.js b/test/test.js
index 6edf31dcee..7fe4356ccd 100644
--- a/test/test.js
+++ b/test/test.js
@@ -5,9 +5,9 @@ import jsdom from 'jsdom';
 
 require.extensions[ '.svelte' ] = function ( module, filename ) {
 	const source = fs.readFileSync( filename, 'utf-8' );
-	const compiled = compile( source );
+	const { code } = compile( source );
 
-	return module._compile( compiled, filename );
+	return module._compile( code, filename );
 };
 
 describe( 'svelte', () => {
@@ -29,6 +29,7 @@ describe( 'svelte', () => {
 				if ( err ) {
 					reject( err );
 				} else {
+					global.document = window.document;
 					fulfil( window );
 				}
 			});