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More arrests might be in store. Malaysian officials say that despite the 50 previously detained suspects, several hundred more are still at large. And in Singapore, Prime Minister Goh Chok Tong recently warned residents that despite the arrests there could well still be terrorists in their midst. "I do not want to alarm you," he said, "but it is prudent for us to work on the assumption that a bomb may go off somewhere in Singapore someday."

There is plenty of evidence that al-Qaeda operatives, or their proxies, are still active in the region. According to sources at all levels of the clandestine arms trade in Southeast Asia, meetings—sometimes several a month—between representatives of militant Islamic groups and their al-Qaeda financiers continue to take place in Malaysia: in cheap hotels and guest houses outside Kuala Lumpur, in the beach resort of Port Dickson and in the cities of Melaka and Johore Baru across the strait from Singapore. "These groups use the Internet to set up the venue and date for their meetings," says Mat, the arms trader. "The messages are sent in encrypted codes. For example, MILF might want 3,000 M-16s and the al-Qaeda member will agree to pay for the weapons."

Just how effectively this system operates is made clear by a spokesman for the fundamentalist Free Aceh Movement, better known by its Indonesian acronym gam. Agreeing to talk only by telephone and refusing to give even a nickname, the 10-year veteran of the murderous struggle—his wife and three children have all been killed in the fighting—says that he regularly places orders with arms syndicates for hundreds of weapons: M-16 and AK-47 automatic rifles, handguns and ammunition. Tracing a well-worn route, the weapons are bought in Thailand, sent down to Malaysia and then carried on boats through the Strait of Malacca.

But, he adds, he has nothing to do with the financing of the deals. He doesn't have any idea how much the weapons cost. Payment is taken care of by sympathizers, such as al-Qaeda. "My job is only to place orders with the arms brokers," he says. "When the weapons arrive, I will be notified."

That notification comes from middlemen like Mat, who are present at the initial meetings, then take over the ordering and delivery, working through the several criminal syndicates that control the region's flow of illegal arms. Due to the sensitivities and dangers involved, only one syndicate actually buys arms for the radical groups. Because the profits for the transactions are so high, official sources say, and al-Qaeda is still apparently able to command significant funds, non-Muslim criminals—some of them outwardly respectable businessmen—are a key part of the process. "The syndicate is based in Malaysia," says Mat, "and is made up largely of Overseas Chinese and some Malaysian Chinese." The middlemen and their sponsors represent the murky underworld where Islamic ideology becomes entwined with the straightforward criminal activity of gunrunning. The size and complexities of that network illustrate the difficulties of an effective government crackdown.

Malaysian officials say the security problem is compounded by the country's successful push in recent years to boost the numbers of visitors from the Middle East, attracted in part by Malaysia's policy of visa-free entry for citizens of most Islamic countries. "How do we stop these Arabs?" asks one official. "Even if we suspect them we can't just arrest people."

While the scope and reach of Malaysia's terror network is alarming, what is more surprising is that fundamentalist and separatist movements throughout Southeast Asia have been funded and armed by al-Qaeda operatives, sometimes without the guerrillas themselves knowing the identity of their backers. Equally troubling is the fact that the al-Qaeda terror network is linked with not only extremist Islamic groups but a host of criminal syndicates. Kuala Lumpur and the other governments can no longer blame foreigners, especially Arabs, for their domestic terrorist problems. The money might come from abroad, but the extremism and criminal support networks are largely homegrown. How Malaysia and the other countries counter this threat will become increasingly the concern not just of the U.S. and other potential targets of terrorism, but of other Asian populations and governments that will face persistent unrest until the War on Terror is finally won.

—With reporting by Robert Horn/Bangkok, Mageswary Ramakrishnan/Kuala Lumpur, Elaine Shannon/Washington, Jason Tedjasukmana/Solo and Douglas Wong/Singapore