  This paper is the second in a series in which we present
intermediate-resolution spectra for a complete sample of 14 compact radio
sources, taken with the aim of investigating the impact of the nuclear activity
on the cirumnuclear interstellar medium (ISM) in the early stages of radio
source evolution. In the first paper we presented the kinematic results from
the line modelling and reported fast outflows in the circumnuclear gas. Here,
we use the line fluxes to investigate the physical conditions and dominant
ionisation mechanisms of the emission line gas. We find evidence for large
electron densities and high reddening in the nuclear regions, particularly in
the broader, blueshifted components. These results are consistent with the idea
that the young, recently triggered radio sources still reside in dense and
dusty cocoons deposited by the recent activity triggering event. In addition,
we find that the quiescent nuclear and extended narrow components are
consistent with AGN photoionisation. For the nuclear broader and shifted
components the results are less clear. Whilst there are suggestions that the
broader components may be closer to shock plus precursor models on the
diagnostic diagrams (with high electron temperatures and densities), we are
unable to unambiguously distinguish the dominant ionisation mechanism using the
optical emission line ratios. This is surprising given the strong evidence for
jet-cloud interactions (broad emission lines, large outflow velocities and
strong radio-optical alignments), which favours the idea that the warm gas has
been accelerated in shocks driven by the radio lobes expanding through a dense
cocoon of gas deposited during the triggering event.
