The Indonesian government doesn’t have the luxury of forgiving. The world’s largest Muslim nation is on a near-war footing, trying to track down all those involved in the Oct. 12 Bali bombing while simultaneously fighting radical Islam for the country’s soul. This two-front war is looming large over the ongoing investigation into the blasts. Indonesian police, assisted by foreign law-enforcement agencies, have thus far conducted a textbook investigation, say Western diplomats. Their big break came two weeks ago when they arrested a Javanese man named Amrozi, who reportedly confessed to being part of the bomb plot and knowing members of Jemaah Islamiyah, a regional terrorist group with ties to Al Qaeda. But police have yet to win the hearts and minds of the Indonesian public, who for decades saw opponents of former dictators Sukarno and Suharto jailed on trumped-up charges. “There’s this tendency to see a conspiracy behind all these things,” says Marzuki Darusman, the country’s former attorney general.

Indonesia’s radical Islamic minority is playing on these fears, claiming that the U.S. Central Intelligence Agency planted the Bali bombs to discredit Islam and accusing Jakarta of now doing Washington’s bidding. The vast majority of Indonesia’s 190 million Muslims are political moderates, but their community leaders–let alone the government–have remained surprisingly quiet in the face of these radicals. “I think the moderates are confused,” says Ulil Abshar-Abdalla, director of the Liberal Islam Network. “People fear that if they are critical of this kind of thing, they will be branded as anti-Muslim.”

President Megawati Sukarnoputri is safe from that charge. Since the Bali blasts, she’s been virtually speechless, doing far less than many moderates would like to raise public confidence in the investigation. Meanwhile, Hamzah Haz, her vice president, has been openly courting radical Islamic leaders and backing their calls for Sharia in order to strengthen his own Islamic party ahead of 2004 elections. Haz continues to downplay the threats from extremists and refers to detained radical cleric Abu Bakar Bashir, the alleged leader of Jemaah Islamiyah, as a friend (interview).

Megawati knows, however, that she can’t let the radicals set the tone for the investigation. Last week the president sent her husband, Taufik Kiemas, and four cabinet ministers to Bali to get her message out. During a rare private dinner with the press, Megawati’s foot soldiers said the president was drawing a line in the sand. Indonesia, they promised, would not be hijacked by its Islamic fundamentalists. “She condemns these terrorist acts, and we’re at war with terrorism,” said Laksamana Sukardi, Megawati’s most senior adviser.

Such rhetoric is likely dictated more by the country’s economic desperation than by Megawati’s political courage. Bookings at the island’s luxury hotels have fallen by as much as 90 percent since the bombings. Indonesia could lose more than $1 billion in tourist revenues and watch its gross national product drop by 1 percentage point. Cabinet ministers are pleading with Western governments to lift their regional travel warnings–and they cite the Bali investigation as key proof that things have changed. “We have a bad history here where there’s no trust in the police,” Sukardi said, “but now we can say our police are professional.”

That may still be a stretch. Last week authorities paraded Amrozi before the media at a Bali police station for a public interrogation. The 40-year-old suspect smiled and joked with the national police chief, Gen. Da’i Bachtiar, as if they were old friends. Then he reportedly pointed at Western journalists watching through an outside window and said they were the sort of people he wanted to kill, to which police officers erupted in laughter. Australian officials were outraged by the police’s handling of the publicity stunt. Gen. I Made Mangku Pastika, who is leading the investigation, explained, “There were a lot of funny words spoken… Should [the police] be crying?” No, but if the government and its moderate allies don’t get serious, Indonesia’s Islamic extremists may have the last laugh.