Indonesia has said for the first time that Osama bin Laden's al-Qaeda terrorist network is operating in the country, following the bomb blasts that killed nearly 200 people in Bali.
The admission came as an exodus of Americans from Indonesia began yesterday, similar to that from Pakistan after the September 11th attacks last year.
Fearing that terrorists could strike again, thousands of stunned holidaymakers thronged Bali's international airport desperately looking for flights home.
The Indonesian Defence Minister, Mr Maori Abdul Jalil, said he was now convinced of a link between al-Qaeda and domestic terrorists. "I see that (the bomb attack) was done by professionals. (That is why) I am not afraid to say, though many have refused to say, that an al-Qaeda network exists in Indonesia."
His remarks, and a call from the foreign minister for the country to take the threat of terrorism seriously, were the strongest yet from the Indonesian government on the possible presence of al-Qaeda cells in the mainly Muslim nation.
The US ambassador, Mr Ralph Boyce, said that while the Bali bombings could not yet be pinned on al-Qaeda, there was evidence it was operating in Indonesia and reaching out to local extremists.
Abu Bakar Bashir, a Muslim cleric accused of leading the radical Jemaah Islamiyah group, strongly denied involvement.
"All the allegations against me are groundless. I challenge them to prove it," he said.
The State Department ordered all dependants of US diplomats to leave Indonesia yesterday and warned US citizens against travelling to the region. It is revaluating its own presence in the country where it has consulates in several cities.
US travel agents reported cancellations of holiday bookings in Bali, and the markets on Wall Streets slumped at the start of trading yesterday reflecting a downturn in Asian markets in the aftermath of the Bali explosions. There was a recovery later in the day.
The Bali bombing was seen in Washington as opening a new front in the US war against terrorism. President Bush called the car bombing a "heinous act" of terrorism.
The Australian Foreign Minister, Mr Alexander Downer, and Justice Minister, Mr Chris Ellison, flew to Bali last night to review progress of the investigation into the attack.
Before flying out, Mr Downer criticised the police in Bali for failing to secure the scene properly for forensic examination. "It was secured and then not secured," he said.
Bali officials said 181 people died, although hospital workers put the figure at 190.
As many as 33 Britons are feared dead in the blast. The British Prime Minister, Mr Blair, spoke of the need to "eradicate this evil in our world".
As returning survivors told how they ran for their lives from the carnage in the island resort of Juta, Mr Blair said the attack showed "the appalling depths to which these extremists will sink".