A Kerrigan Street resident replacing his vegetable patch this week found two pieces of vertebrae as well as the tags with the name Leroy Happel of Waterloo, Indiana, stamped on them.

Forensic anthropologists and Port Stephens police returned to the backyard yesterday and began sifting earth in an unsuccessful attempt to find more bones.

They had only sifted through top soil before a storm struck yesterday afternoon and will return this morning to continue the painstaking search using a mechanical sieve.

It is still unknown whether the vertebrae are human or animal, but the discovery has prompted several theories about how they came to be with the dog tags and nearly a metre underground in a residential area of Nelson Bay.

One of those theories is the mysterious story of an American serviceman who reportedly spent some time based at Port Stephens in the 1940s and may have requested his last resting place be under wildflowers at Nelson Bay if he was to die in action.

Others include a more sinister ending to the marine's life, while police cannot rule out that the dog tags were simply discarded by the serviceman and buried with a pet or even given to a war-time sweetheart.

It is also possible the marine simply lost the tags, survived the war and is still alive back in the United States.

About 20,000 American servicemen spent time at Nelson Bay in 1942 and 1943, their base less than a kilometre from where the dog tags were dug up.

Port Stephens detectives yesterday contacted the US Consulate in an effort to trace the movements of any Leroy Happels who had ties with the area.

"We can't rule anything out," Port Stephens crime manager Detective Chief Inspector Peter Fox said.

As well as prompting wild theories on what may have happened to the marine, the discovery has caused some long-time residents to remember when the area was still mainly bush.

Robyn Tarrant, who moved nearby in the early 1950s, said there were two small houses on adjacent blocks where the dog tags were found.

However, a lot of the area was still scrub.

A resident who did not wish to be named found the tags while digging a new vegie patch on Tuesday.

But it was not until Wednesday that he took a close look at the tags and connected them with a piece of bone he had also dug up in his yard.

While showing officers where he found the tags, the resident dug up another piece of vertebra before police called in the experts.