SSH to your EC2 Instance as standard ec2-user
sudo adduser -m testuser
sudo su - testuser
mkdir .ssh
chmod 700 .ssh
touch .ssh/authorized_keys
chmod 600 .ssh/authorized_keys
On your local pc, if you don't have them already, generate rsa keys (always give enter on default options)
ssh-keygen -t rsa
cat ~/.ssh/id_rsa.pub
Copy the output (something like this)
ssh-rsa AAAAB3N.......Psut95c237gtzkwlU7iAOeiPWJduMV/bPxXnrB/YqF+XwRMuiz testuser@testEC2
and paste into the .ssh/authorized_keys of your testuser of testinstance (using vi or nano or whatever)
from your client ssh to your ec2
ssh testuser@ip.e.c.2
This will work. I don't really get the Amazon way of sharing and setting up pem keys. I think it is easier for their automated systems but not for sysadmins. You can use your public key that way on all the servers you need to admin.