JAKARTA, Indonesia - Even here in Indonesia, where there is a strong tradition of tolerance, there is a war going on between radicals and moderates for Muslim hearts and minds. You can see that war in the police armed with automatic rifles, manning anti-vehicle barriers in front of my hotel and every other large Western-linked building in Jakarta. In August, Islamist terrorists blew up a suicide bomb in front of the Marriott Hotel here and are threatening to hit a long list of targets that includes schools attended by Western children. These are the same bombers who killed more than 200 people in Bali last November. The war is being fought on Indonesia's campuses, particularly secular universities where students are intrigued by radical Islam. Activists from Indonesia's liberal Islamic movement disdainfully call them "born-again Muslims'' and hold provocative campus forums with titles like ``There is no such thing as an Islamic state.'' At a religious boarding school in Yogjakarta, one of tens of thousands of pesantran spread across this vast country, they teach that the Koran is to be understood, not just rotely chanted in Arabic. "We are not frozen in those Koranic verses,'' director Tabiq Ali said. ``Interpretation depends on our own thinking.'' You can even see the war in a steamy best-seller about a Muslim woman whose faith was shattered by the hypocrisy of Islamic radicals who preached righteousness while sleeping with her. The subject of the book, a Yogjakarta university student, now fears retribution. This is a war we cannot afford to see lost. Indonesia is not only the largest Muslim nation in the world, but it could also become a base for radical Islam to spread throughout Southeast Asia. Alternately, Indonesia's struggling democracy could set an example for others in the Muslim world. "You have all the ingredients that could make this place the first Muslim majority democracy that works,'' says Sidney Jones, a leading expert on Islamic terrorism in Southeast Asia. ``And you have all the dark forces eager to push Indonesia in the opposite direction. The question is where does it come out.'' What can the United States do in this war? So far our efforts have focused almost entirely on aiding the pursuit of Jemaah Islamiyah, a Southeast Asian terrorist group linked to al-Qaida. Initially, the government denied it had a home-grown problem and was wary of seeming to follow American dictates. But after the shock of the Bali and Marriott bombings, the authorities have captured many of the terrorists and successfully prosecuted them. Ultimately, however, Indonesia needs to build a modern society. While the rest of Asia, from India to Vietnam, vibrates with the energy brought by the information technology revolution, Indonesia feels like a stagnant backwater. Its economy limps along, plagued by poverty and corruption. The key is a woefully underfunded educational system. Unlike Pakistan's madrassah system, the religious schools are integrated into the state system, and many offer a secular curriculum along with religious teaching. But in the pesantran that I visited, one in a city center and the other in the countryside, I found classrooms that offered little more than whitewashed walls and wooden desks. Computers are few in number and science labs primitive, if even existing. State schools are better equipped but still backward. Why not wire every school to the Internet, build science labs and, most importantly, train teachers? A recent report on U.S.-Indonesia relations by the U.S.-Indonesia Society and Stanford University's Asia-Pacific Research Center urged a significant effort to fund education. President Bush picked up on that idea, announcing a U.S. educational aid program during his October stopover here. But he alarmed Indonesians by tying the initiative to the war on terror. The U.S. ambassador had to make the rounds assuring Indonesians that the U.S. was not out to dictate curriculum in its religious schools. More troubling is the pathetic amount of money he offered -- most of it funds shifted from existing programs -- only $157 million over 6 years. Says former Ambassador Paul Cleveland, who heads the U.S.-Indonesia Society: "You would get more democracy out of $1 billion spent in Indonesia than $20 billion spent in Iraq.''

President Bush's week-long swing through six Asian nations is long overdue. Despite being home to half the world's population and the globe's most dynamic economies, Asia has received scant attention from this administration. Unfortunately the president has only one subject on his agenda -- the war on terrorism. The president is touching lightly, if at all, on the other issues that matter most to this region -- economic globalization, China's growing presence, and political instability fed by economic disparities. This is not surprising. The Bush administration doesn't seem to think much about global economic issues. And when it does speak, as it has recently on the issue of currency manipulation by China and Japan, the administration's policy is confusing and contradictory. In Asia, the single-minded focus on terrorism leaves an opening for others -- China first of all -- who are more in tune with the region's concerns. "I've never seen a time when the U.S. has been so distracted and China has been so focused,'' Ernest Bower, the head of the U.S. business council for Southeast Asia, told a business magazine.

Regional economic bloc

Faced with multiple challenges, the countries of Southeast Asia have accelerated plans to create a regional economic bloc like the European Union. The Chinese, followed closely by India and Japan, are embracing the idea, proposing the creation of a vast East Asian free trade area that would encompass nearly 2 billion people, but notably not include the United States. When national security adviser Condoleezza Rice briefed reporters on the president's trip, the focus was almost entirely on security issues. Bush's itinerary is designed to highlight the nations working closely with the United States to combat Al-Qaida-linked Islamist terror groups in Southeast Asia -- Singapore, the Philippines, Indonesia and Thailand. Or to reward those who are backing the war in Iraq -- Japan and Australia. Even at the annual Asia Pacific Economic Cooperation summit in Bangkok, Bush plans to `"stress the need to put security at the heart of APEC's mission because prosperity and security are inseparable,'' Rice said. No one can argue with that basic proposition. The example she cited was the terrorist bombing a year ago in Bali, Indonesia, which shut down tourism, a vital source of income for Indonesians. But let's not look at that link through the wrong end of the telescope. We need to grapple with the poverty and income inequality in Indonesia, the world's largest Muslim-populated nation, which feeds growing Islamic radicalism.

China drives growth

East Asia has largely emerged from the financial crisis that swept through this region in 1997-98 and sent countries such as Indonesia into economic collapse. Economic growth should pick up to almost 6 percent next year, the World Bank has predicted. But much of this is driven by China's rapid growth, which is in turn sparking a sharp rise in trade within the region, much of it between countries in the region and China. These countries look warily on this rising giant. China is sucking away foreign investment from places like Silicon Valley that used to flow to them, and with it, jobs. At the same time, progress toward a global free market that ensures fair competition has stalled. The world trade talks in Cancun last month collapsed in rancor, and the United States seems content now to pursue its own bilateral trade deals with favored countries such as Singapore and Australia.

10-nation association

This has encouraged the 10-nation Association of Southeast Asian Nations to accelerate plans to create a European Union-style economic community. The Chinese sent a huge, high-powered delegation led by their premier to their recent meeting, signed a friendship treaty with the group and pledged to negotiate a free-trade zone with the group. "The Chinese are moving in in a big way,'' says Stanford University expert Donald K. Emmerson. Where is the United States in all this? "We're outside, and our businesses are going to be outside,'' says Brookings Institution global economic expert Lael Brainard. "The Bush administration needs to get a handle on this.'' If it doesn't, the United States will wake up one day from its infatuation with unilateralism and return to Asia to find that the furniture has been rearranged and the locks have been changed.

APARC Professor Donald K. Emmerson, together with IIS Director Coit D. Blacker and Hoover Institution Fellow Larry Diamond (both of CDDRL), discussed "Democracy vs. Liberty" on the television program "Uncommon Knowledge."

Is democracy - that is, free elections - to be desired at all times for all nations? Or are nations more successful when they establish the rule of law, property rights, and other constitutional liberties first? For the United States, this is no longer an academic question. America is deeply involved in nation-building in Afghanistan and Iraq. Should the establishment of democracy in these countries be the first priority for the United States, or is securing public order and the rule of law more important?