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Ali Gufron, A.K.A. Mukhlas, was arested while hiding out in central Java
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Pious. Humble. Quiet. Intelligent. These are words used by friends and acquaintances to describe Ali Gufron, a.k.a. Mukhlas, alleged terrorist mastermind and, until last week, the most wanted man in Indonesia. Here's another word to add to the list: arrogant. It was arrogance that kept Mukhlas in central Java, the location of the largest manhunt in the country's history in the wake of the Oct. 12 Bali bombings that left 191 dead. The investigation had already pinched his brother Amrozi and the operation's suspected chief planner, Imam Samudra, together with a small army of foot soldiers implicated in the blast. But instead of fleeing to a safe haven overseas or to Indonesia's remote and often lawless island provinces, Mukhlas, believed to be the inspiration and financier of the Bali operation, stayed on his home turf—possibly, says an Indonesian police source, planning other acts of terror. Mukhlas had underestimated those on his trail, and it was to be his undoing.

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A traced mobile-phone call led a team of heavily armed police to a humble red brick house in the village of Mlandangan. This was the home of Najib Nawawi, a traveling salesman known to neighbors for hard work, honesty, a willingness to make sacrifices for others and his role as a prayer leader at the local mosque. In this village of impoverished rice farmers and cassava growers, such character traits made Najib a friend to many—including Mukhlas. Shortly before midnight last Tuesday, five police officers escorted by village chief Hadi Komari knocked on Najib's door. His wife Siti answered and told Komari, "My husband is not here." (Unbeknownst to her, Najib had been arrested at the mosque following evening prayers.) Police rushed past Siti to a bedroom in the back of the house. According to Komari a "thin and rather small" man lunged at the police with a sword and scissors before eventually being overpowered. "The man had some martial arts skills," Komari tells TIME. "It took the police, who were all heavily built, at least five minutes to stop him." The man was Mukhlas, who police describe as the operations chief of Jemaah Islamiah (JI), a Southeast Asian terrorist group with links to al-Qaeda.

The raid was the clearest sign yet that Indonesian police are determined to catch the Bali bombers—and to root out JI. In six other raids in the Solo area last week, police netted 13 suspects in the Bali bombing, including Mukhlas' wife Farida and Said Sungkar, the younger brother of the late Abdullah Sungkar, who fled to Malaysia with fellow cleric Abubakar Ba'asyir in 1985. (Intelligence officials say the two clerics were the founders of JI.) Police also say they found a small cache of arms in Solo safehouses and $3,000 in cash. Despite these successes, the specter of terror continues to haunt Indonesia. Last week, a bomb went off at a McDonald's branch in Makassar, the capital of South Sulawesi province, killing three people. Police are investigating the possibility the attack was part of JI's terror campaign.

Nonetheless, the arrest of Mukhlas was clearly a major blow in Asia's war on terror. Regional intelligence agencies have identified him as the handpicked successor to Riduan Isamuddin, a.k.a. Hambali, JI's alleged operations chief. In an organization divided into cells, each unaware of what the other is doing, Mukhlas is one of only a few operatives aware of the complete picture and capable of planning and executing attacks, says Zachary Abuza, author of a forthcoming book on al-Qaeda in Southeast Asia. "Make no mistake, JI will suffer because of Mukhlas' arrest," he observes. "He's a very important figure. They have so few operatives capable of putting together attacks."

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Sitting in his cell in Solo last week, Mukhlas must have wondered where he went wrong. He could start with his decision to travel to Malaysia in the mid-'80s to further his Islamic studies under Abubakar and Sungkar. In the town of Sungei Tiram in the southern state of Johor, the two clerics opened a madrasah teaching a militant brand of Islam. It was here that Mukhlas met Hambali, an Indonesian who had seen action as a mujahedin in Afghanistan. Intelligence officials believe the four men used the madrasah as a base to recruit students into JI. Residents in Sungei Tiram who remember Mukhlas from his time as an instructor say his teaching practices were peculiar. "He would take the boys into the jungle at night to test their bravery," a former student, Ita, 23, told TIME. "Those who passed were then taken to a cemetery. He showered praise on the brave ones." Some of these brave ones apparently went on to become jihadis. Pak Ali, the father of a former graduate of the school, believes he has lost his son due to Mukhlas. His son disappeared six months ago, Ali says, and is now wanted by authorities. "The police say they found his passport and the last destination was India. I never questioned my son's involvement with Mukhlas because like everyone else I saw Mukhlas as a pious man."

Mukhlas' recruits were not just teenage students. He counted friends and relatives as fair game. His brother Amrozi was among the first. In 1999, Mukhlas traveled to Singapore, where intelligence officials say he recruited a core group of followers, including his brother-in-law, to conduct surveillance for a possible terrorist strike on the city-state. The plan was eventually foiled. A year later the Malaysian madrasah was closed and Mukhlas returned to central Java, following in the footsteps of Abubakar.

With Mukhlas' arrest, Abuza believes Hambali will now step back into the role he abandoned this year and slowly be-gin rebuilding the network that has been damaged by the region's crackdown on terror. "They have the ability to train and rebuild," he says. "Al-Qaeda and JI target what they can at the time depending on operational capability. They will try to rebuild this network. But they are on the run."

It must pain the group's leadership that the network came undone in Indonesia, traditionally regarded as fertile ground for the recruitment of jihadis, and a safe place to meet, plot and, as Bali proved, wreak havoc. Regional intelligence officials have long suspected that JI took advantage of the country's instability and its indecisive leadership to provide support and training to jihad groups. In June 2000, al-Qaeda leaders Ayman al-Zawahiri and Mohammed Atef (who was killed in October 2001 in a U.S. bomb strike in Afghanistan) traveled to the strife-torn provinces of Aceh and the Maluku islands and "were clearly impressed by the lack of security, the support and extent of the Muslim population," according to an Indonesian intelligence briefing.

The Indonesian government led by President Megawati Sukarnoputri has until lately seemed incapable of action. But the Bali tragedy left her government no choice but to move against terrorists. "The government knew that if it didn't do something the international fallout would be immense," says Alan Dupont, an Asia-Pacific strategic defense analyst at the Australian National University in Canberra, "and they realized that the economic impact on the country would be confined not just to Bali but also to the interests of Indonesia as a whole."

The speed with which Bali suspects have been rounded up by police, including the prize scalp of Mukhlas, does not surprise Dupont. The cooperation of the Australian police force in the investigation, in particular in forensics analysis and mobile-phone tracking, has proven invaluable. But Indonesian police had a head start. "It is apparent that Indonesian intelligence had a fairly good idea of who these people were before the Bali blast," he says. "In Indonesia it's not for want of information that people aren't arrested. It's a question of political will."

With police now acknowledging the existence of JI in the country, the search will now focus on Hambali. "We believe Hambali is still here but he has most likely changed his name and identity," a police source says. But as the arrest of Mukhlas shows, Southeast Asia's terrorists may be running out of secure places to hide.