Images of that great Bombay monument, the Taj Mahal Palace hotel, engulfed in flames and thick billowing smoke cannot help but recall the collapsing twin towers of 9/11. The attack seems to bear all the hallmarks of an al-Qaeda operation.

The terrorists chose Bombay (Mumbai), the New York of India; they targeted iconic buildings - the Taj and the Chhatrapati Shivaji railway station, the flamboyant mini-St Pancras that is redolent of the Raj-era glory days. The terrorists are reported to have been daring in their approach - they arrived by sea not far from the Raj's 1911 monument to itself, the basalt Gateway of India.

The Bombay outrage is a reminder of how crucial South Asia is in the creation of radical Islamist terrorism. Although the US often points the finger at Europe as its main incubator, it is in the sub-continent and the surrounding arc of states, simmering with ethnic and religious rivalries, that Islamist extremism thrives.

India has been plagued by more run-of-the-mill domestic terrorism in recent years, but this was the first full-scale anti-Western attack and Manmohan Singh, the Prime Minister, was quick to assert that it was the work of outsiders.

There is evidence to support his claim. The targeting of British and US citizens as hostages in the two hotels is a novel development. So too is the use of AK47s and commando tactics. In style and execution it was closest to attacks in the Saudi city of Khobar in May, 2004, when oil installations were targeted by apparently well-trained, Sten-gun-wielding paramilitaries who seized Western workers as hostages.

The timing of the attack, likely to derail efforts by the incoming Obama Administration to pursue a more constructive approach to the War on Terror, also seems too convenient to be mere coincidence.

But unlike 9/11 there is evidence of an entirely domestic element at play. In recent months there has been a spate of bombings in Indian cities. Responsibility has been claimed by the Indian Mujahadin - one of several fronts for the Students Islamic Movement of India (Simi). It is through Simi, Indian officials fear, that international terrorist networks have begun to penetrate more deeply into India - often through links with the Gulf.

Founded in the late 1970s as a study group, Simi became involved in violence after the Hindu nationalist destruction of the Ayodhya mosque in 1992 and the Bombay riots of 1993. Banned after 9/11, it developed an underground network throughout India and Bangladesh. In the past 18 months there have been signs of a new international element in its activities. After the Jaipur bombings this summer, the Indian Mujahadin threatened foreign tourists. There is speculation of links with Gulf-based jihadist organisations.

However, terrorism in India is by no means an exclusively Muslim practice. Terrorist violence is, sadly, endemic. In the past four years India has suffered the highest rate of civilian death by political violence after Iraq. It is at present experiencing a form of politics more akin to Italy's violent “Years of Lead” in the 1970s than Gandhi's Golden Age of Ahimsa (non-violence).

In its interiors, far-left Naxalites have waged an intermittent guerrilla war for more than 30 years; in the 1980s the Khalistan-Punjab crisis claimed 40,000 lives, and the insurgency in Kashmir another 90,000. And in the late 1980s and early 1990s Hindu nationalist extremists used terrorism as an electoral strategy - and appear to be doing so again in this election year with attacks on Indian Christians in eastern and southern India.

But despite the multi-religious and multi-ethnic origins of terrorist violence the Indian authorities have, until recently, tended to treat only Muslims as terrorists. So while Muslim “terrorists” have been subject to extraordinary laws of detention and trial in special courts, Hindu nationalist “rioters” have been tried in regular courts, or, more usually, not been punished at all.

One of the principal complaints of Indian Muslim groups is the failure to bring to trial any of the Hindu ringleaders responsible for pogroms in Bombay in 1993 and Gujarat in 2002 in which more than 4,000 Muslims died.

While the Pakistani intelligence agency, the ISI, and international jihadist groups have undoubtedly trained and funded Indian Muslim terrorists, the chief recruiting officer is often the Indian State.

This is especially true at regional and state level where the police and judiciary are often “captured” by Hindu political interests that have used anti-terrorist laws to pursue political vendettas. The extreme poverty of many Muslims in India, whose status, according to a recent report, was below that of the “Untouchable” caste of Hindus, has increased frustration.

While “Untouchable” and other low-caste groups are actively promoted into universities and prestigious state jobs, India's 150 million Muslims, who make up 13 per cent of the population, hold only 3 per cent of state posts. They are even less well represented in the police.

There are signs that the present Congress-led coalition recognises these problems. On taking office in 2004, Dr Singh's Government abolished the controversial Prevention of Terrorism Act (Pota), which, the Prime Minister argued, was propagating rather than preventing terrorism.

Another positive sign was the recent arrest of Hindu nationalist terrorist cells in Maharashtra. After the Delhi bombs in September the Government announced the creation of a central intelligence agency to monitor Islamist terror. Given the intelligence failures emerging in the wake of the Bombay catastrophe, this can only be welcomed

The immediate effect of the Bombay attacks will probably be to fuel the recovery of the Hindu nationalist BJP and its supporters, who are demanding the reimposition of the Pota laws. We can only hope that better counsel prevails and India does not lapse into a new cycle of violence and revenge.

Maria Misra is the author of Vishnu's Crowded Temple: India and the Great Rebellion (Penguin) and a Fellow of Keble College, Oxford

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