Indian officials and western diplomats have been alarmed by an increase in terrorist attacks by militant groups linked to Al-Qaeda and by the Dhaka government’s failure to crack down on them.

One group said to have links with the government claimed responsibility for 500 synchronised explosions in 63 of Bangladesh’s 64 districts in August.

India’s cabinet has decided to speed up work on the 8ft security fence, which is intended to keep out terrorists and arms smugglers. The fence, which cuts a swathe through some of India’s densest rainforests, will be finished by the end of next year and patrolled by a border security force. Key stretches are being electrified.

The initiative follows attacks by two groups related to Al-Qaeda — Jamaatul Mujahideen Bangladesh and Harakat-ul- Jihad-ul-Islami (Bangladesh), which was among 15 organisations that were banned in Britain last month.

Grenade and bomb explosions across Bangladesh have killed 30 and injured hundreds in the past year. Two Awami League opposition leaders were among those killed and the British high commissioner was targeted in a grenade attack.

It was the August 17 blasts that caused the most alarm. Although only two people died, they showed a new level of sophistication. There were 28 bombs in Dhaka alone and the targets included the prime minister’s office, the police headquarters and the supreme court.

Leaflets found at the bomb sites declared: “It is time to implement Islamic law in Bangladesh” and “Bush and Blair be warned and get out of Muslim countries”.

Jamaatul Mujahideen Bangladesh is led by “Bangla Bhai”, a former vigilante who once fought alongside the Taliban in Afghanistan.

Opposition leaders and diplomats believe the government has failed to act against Bangla Bhai and other terrorists because they have connections with the governing coalition.

There are two Islamic fundamentalist parties in the coalition, which is led by Begum Zia’s Bangladesh Nationalist party: the Jamaat Islami (JI), which has 10% of the vote, and the Islami Oikya Jote (IOJ).

The JI is increasingly respected by ordinary voters for its social welfare work, lack of corruption and the operations of its bank, the most profitable in Bangladesh. “You don’t have to pay a bribe to get a loan from them,” said a western observer.

Senior members of the IOJ have declared themselves to be “for the Taliban and for Osama (Bin Laden)”. “There’s a reluctance to acknowledge there’s a problem here,” said one diplomat, who described the IOJ as “real wackos”. He added: “These are the ones going after an anti-American armageddon. Some of the people charged with the bombings have had linkages with the main party.”

Sabir Hossain Chowdhury, an opposition leader who was detained for three months after complaining about Islamic militants linked to the government, said Bangladesh was being subjected to a campaign of intimidation and the government was guilty of complicity. “Bangladesh is probably the only government in the world that includes a group which is committed to jihad and sharia,” he said.

The country was undergoing creeping “Islamicisation”, he added. “If you look at state TV, more presenters are wearing beards. On the radio they’re reciting more and more from the Koran. The most notable example is at Dhaka airport where signs are now in Arabic but no one speaks it.”

All the partners in the government coalition deny condoning political oppression or terrorism or failing to act. They point out that they have banned two of the main terrorist groups and made high-profile arrests.

Western diplomats are caught between fear and denial. “Our impression is that the government here has the ability to crush these guys if they want to,” said one. “All the ingredients for trouble are here.”

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