Yes, Ground Fault Circuit Interrupters were specifically designed to provide protection against harmful electrical shocks on circuits without the third wire ground. They cause a circuit breaker to pop if the magnitude of the current is not the same in both the hot and neutral wires (indicating current leakage to something else like a person or water).
However they also happen to make grounded three wire circuits even safer than they already are.
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Yes, you install a GFCI on a 2 wire circuit.
No. Not if the GFCI is wired correctly. The neutral wire should always be cold, or at ground potential.
that's the earth plug and it must be connected, otherwise circuit protection will not operate properly.
Ground wire is loose or disconnected somewhere in that circuit.
I assume you are hard wiring it and not plugging it in. The power coming into the GFCI outlet connects to the line side of the GFCI outlet. If you want the outdoor timer protected by the GFCI then connect the wire going to the timer to the load side of the outlet. If you do not want the timer protected then connect it to the line side. On the back of the GFCI if you look closely you will see Line & Load marked on the back.