Al-Qaeda's New Proving Ground

By Romesh Ratnesar

Until the moment their world came apart on Oct. 12, the surfers and club kids who flocked to the idyllic resort of Bali had little reason to believe they were in any particular danger. The U.S. had issued a general travel advisory about increased al-Qaeda activity around the globe. But the possibility that terrorists would strike Bali, a Hindu island in mostly Muslim Indonesia, seemed so remote that several officials from the U.S. embassy in Jakarta decided to spend their Columbus Day weekend there; one of them was relaxing just outside the Sari Club an hour before it blew up.

The scale, deadliness and timing of the Bali bombings were unanticipated, but they did not come as a complete shock to U.S. counterterrorism authorities. U.S. intelligence sources told TIME that in several meetings with Indonesian President Megawati Sukarnoputri since early September, Administration officials have informed her that the U.S. had evidence that al-Qaeda had established a major presence in Indonesia. They pressed her to arrest Islamic militants they believed were linked to Osama bin Laden's network, including Abubakar Ba'asyir, the alleged spiritual leader of Jemaah Islamiah, a radical Islamic group suspected of terrorist attacks across the region. Two days before the bombings, U.S. Ambassador Ralph Boyce told Megawati that if she did not begin cracking down, the U.S. would close its embassy, which might drain Indonesia of American investment and devastate its economy. "We put it to them very hard," says a senior State Department official.

It took one awful night in Bali for the message to get through. The Megawati government last week acknowledged that al-Qaeda is active on Indonesian soil, granted intelligence authorities the power to interrogate suspected terrorists without proof of wrongdoing and finally placed Ba'asyir under arrest. But the Bali attacks suggest it may be too late to prevent al-Qaeda from making the vast Indonesian archipelago a new sanctuary. "We've been talking with them for a long time about the seriousness of the problem," Deputy Secretary of Defense Paul Wolfowitz, a former ambassador to Indonesia, told TIME. "There's obviously a lot more to do, and maybe this will serve as a wake-up call for them."

Though the vast majority of Indonesians practice a moderate form of Islam, the country is an attractive haven for Muslim extremists. Monitoring terrorist activity in a swath of territory that spans more than 13,000 islands would test the mettle of any government, let alone a democracy as young and fractious as Indonesia's. Since the start of her tenure last year Megawati has shied away from trying to snuff out the extremist threat, in part to placate religious conservatives like Vice President Hamzah Haz, Megawati's likely opponent in the 2004 presidential race, who has long supported radical groups and has denied that there are any terrorists in Indonesia.

Haz was chosen by parliament to replace Megawati as Vice President after she was elected by the same body to succeed the impeached Abdurrahman Wahid. Haz is the head of Indonesia's main Muslim political group, the United Development Party, the third largest party in parliament; in 1999 he opposed Megawati's first bid for the presidency on the ground that the world's largest Muslim country should not be run by a woman. Megawati's secular Indonesian Democratic Party of Struggle controls just one-third of the seats in parliament. High unemployment and chronic government corruption have caused many to doubt her resolve to tackle tough problems. So to hang on to power and get re-elected in 2004, Megawati can't afford to ignore the conservatives. "Every politician in Indonesia needs the Islamic vote, and with Megawati it's even more so because of her secular nationalist background," says Arbi Sanit, a lecturer in politics at the University of Indonesia.

Efforts to get tough on terrorism are complicated by the government's desire to keep its distance from the military and security services, which were notoriously abusive under longtime dictator Suharto. A Western diplomat in Jakarta says if Megawati were to hand law-enforcement authorities too much power, "moderates of all stripes would make common cause against her out of fear that it marked the beginning of a return to the draconian methods of the Suharto days." Says Wolfowitz: "Americans need to understand we're dealing with a country that only recently became free after 50 years of dictatorship. Indonesians are leery about giving too much authority to the police." Whatever the causes, says Rohan Gunaratna, an expert on al-Qaeda at St. Andrews University in Scotland, Indonesia is "the only place in the world" where radicals linked to bin Laden "aren't being hunted down."

Last month the U.S. began ratcheting up the pressure on Indonesia. In early September, Omar al-Faruq, a senior al-Qaeda operative arrested in Bogor, Indonesia, in June, confessed to U.S. investigators his involvement in a string of planned terrorist attacks in the region. According to a cia account of the interview, first disclosed by TIME last month, al-Faruq said Jemaah Islamiah's Ba'asyir had conspired in several of the plots and had ordered his followers to cooperate with al-Qaeda. (Ba'asyir has long denied any connection to terrorism, and is suing TIME over its report.) In mid-September, after phoning Megawati to discuss the threats detailed by al-Faruq, President Bush sent National Security Council aide Karen Brooks to Jakarta to press the Indonesians for action. On Sept. 23, after a grenade exploded near the Jakarta residence of an American embassy worker, U.S. officials told Indonesian counterparts they feared that the al-Qaeda threat "was changing form and going after softer targets"--such as sites frequented by tourists, according to a senior U.S. official.

After a tearful visit to the bombing site in Bali, Megawati soon displayed a newfound steeliness, rushing through an emergency presidential decree mandating tough antiterrorism regulations. Indonesian police ordered Ba'asyir to appear for questioning not in connection with the Bali attacks but for a spate of church bombings in 2000. But first, after giving a news conference in which he said "the Americans and Jews are terrorists," Ba'asyir collapsed and was hospitalized; the next day Indonesian police put him under arrest in the hospital. Signing on at last to the war on terrorism could cost Megawati support from Islamic hard-liners--or worse, incite violence from Ba'asyir's followers, who had promised to revolt if their leader were arrested. Though radical groups make up a tiny minority of the population, there is the possibility that they could further undermine the authority of the central government, making Indonesia even more hospitable to terrorists. "Al-Qaeda is already here and capable of launching more attacks," says a Western diplomat in Jakarta. "It's obvious there don't have to be many of them to do damage." --Reported by Simon Elegant, Zamira Loebis and Jason Tedjasukmana/Jakarta and Massimo Calabresi, Mark Thompson and Douglas Waller/Washington

With reporting by Simon Elegant, Zamira Loebis and Jason Tedjasukmana/Jakarta and Massimo Calabresi, Mark Thompson and Douglas Waller/Washington