Prime Minister Mahathir Mohamad asserted his role as leader of an "Islamic state" today, and warned Muslim terrorism would not end until there was justice for the Palestinians.

In a two-hour address to the annual assembly of his United Malays National Organisation (Umno), the veteran Southeast Asian leader launched a double-barreled attack on both Islamic extremists and Western "panic" over terrorism.

"We are sure that the principal cause of the terrorism by Muslims is their anger against Israel, the seizure of Palestinian land by Western powers in order to create the state of Israel," he said.

"If terrorism is to be stopped then the injustice and the oppression of Israel against Palestine and its people must be stopped quickly first."

Mahathir, 76, said that faced with the unprecedented threat of terrorism after the Sept 11 attacks on the United States "the big powers appear to have panicked and lost their direction".

"Unused to handling attacks by terrorists they resorted to conventional warfare."

Afghanistan was attacked, although the September 11 terrorists were not Afghans, and many innocent people, including women and children were killed, he said.

"But terrorism has not been stopped. The big powers continue to live in a state of war because they believe that at any time the terrorists will attack again."

Not effective

Defeating the Taliban rulers in Afghanistan had not been effective in the fight against terrorism, Mahathir said.

"Actually the possibility of terror attacks has increased because Israel, which oppresses Palestine, used the war against terrorism to upgrade its terror attacks against the Palestinians."

Israeli Prime Minister Ariel Sharon fought terror with terror, but "even if the Israelis kill all the six million Palestinians" other Muslims and Arabs could take up the fight, he said.

"It is impossible for Israel to kill 1.3 billion Muslims in order to secure itself," he said, adding that it was up to the big powers to solve the Palestinian problem.

Turning to domestic politics, Mahathir, who has been in power for 21 years, said his declaration last year that Malaysia was an "Islamic state" was aimed at avoiding a split among Muslims in Malaysia.

The role of religion in government has become central to Malaysian politics in the wake of the Sept 11 terror attacks and a crackdown here on alleged Islamic militants.

Mahathir, who has condemned the attacks and won praise from the US for his cooperation in the war on terrorism, has said terrorism is unIslamic and in September declared that Malaysia was a true "Islamic state".

Second-class citizens

Non-Muslim opposition parties have objected, saying this contravened the secular constitution and could make those who do not profess Islam into second-class citizens.

Muslims make up just 60 percent of Malaysia's 23 million population, with large Chinese and Indian minorities following Buddhism, Christianity and Hinduism.

However, the main opposition competing with Mahathir's Umno to win the support of Malay Muslims is the hardline Parti Islam SeMalaysia (PAS), which wants to introduce a theocratic Islamic state if it comes to power.

Without naming PAS, Mahathir attacked the party for distorting the teachings of Islam, quoting the Koran at length in defence of his own more moderate interpretation of the religion.

A key issue is PAS' plan to introduce Islamic Syariah law next month in northeastern Terengganu state, which it controls. The law provides for stoning to death for adultery and amputation of limbs for theft.

Mahathir has said he will block the move if the federal government has the power to do so, and devoted several pages of his 27-page address to explaining why he believes PAS' programme is not truly Islamic.