The Australian prime minister, John Howard, says the atrocity on the island of Bali is "proof" that "the war against terrorism must go on with unrelenting vigour and with an unconditional commitment". What he means is that he will continue to perform his holier-than-Blair role as George W Bush's most devoted, if not universally recognised, foreign gang member.

The Australian military is, in effect, an extension of the Pentagon. Australian ships operate with the American fleet in the Gulf, enforcing an embargo against Iraq which, according to the United Nations Children's Fund, has led to the unnecessary deaths of more than 600,000 Iraqi children. In Indonesia, Australians, together with their American counterparts, have secretly resumed training the Indonesian military, which, in the world cup of terrorism, is the undisputed champion.

Al-Qaeda has been fingered in Washington for the Bali outrage. The script is unchanged. To Bush, Blair and Howard, the Bali bombing will be simply further justification for attacking Iraq.

How truly bizarre the American enterprise of world conquest has become. First, there was the bombing of Afghanistan, the equivalent of bombing Sicily in order to eradicate the Mafia. "Terrorism" is the enemy; or as Python's Terry Jones remarked, "They're bombing an abstract noun!" What is clear is that the more bellicose Bush and Blair and Howard become, the more they place the citizens of their own countries at risk.

Like a mouse perpetually roaring, Howard's warmongering has endangered every young Australian backpacking in those countries where his and Bush's provocations are welcomed by extreme groups. Since he became prime minister in 1996, Howard has renewed Australia's reputation in Asia for European exclusivity.

This is tragic, for it is not long since Australia emerged from the cultural isolation of its notorious "white Australia policy" and appeared to express the confidence of the ethnically diverse society it had become. Embracing Asia became politically fashionable, and the old colonial fear of the Asian hordes falling down on Australia, as by the force of gravity, was rejected by many Australians, especially the young.

Howard's openly racist policies have again begun to isolate Australia. He has deployed Australian troops against helpless, mostly Muslim,asylum-seekers on the high seas - more than 350 people went to their deaths in a leaking boat last year even though, as it has now been revealed, Australian military intelligence knew they were in great peril. He has imprisoned many of those who have reached Australia (mostly from Iraq and Afghanistan, the countries he claims to be "liberating") in desert concentration camps in conditions which, reported a United Nations inspector, were among the worst he had seen in more than 40 inspections around the world.

Seldom a day passes when Howard and his inept foreign minister, Alexander Downer, do not utter vacuities about "the war on terror". The truth is that, for almost 40 years, Australian governments have played a significant role in colluding with state terrorism in neighbouring Indonesia. In 1965, the then prime minister Harold Holt joked about the mass murder that accompanied the seizure of power by General Suharto, the west's man. "With 500,000 to a million communist sympathisers knocked off," he said, "I think it's safe to assume a reorientation has taken place."

During the long years of Suharto's dictatorship, which was shored up by western capital, governments and the World Bank, state terrorism on a breathtaking scale was ignored. Australian prime ministers were far too busy lauding the "investment partnership" in resource-rich Indonesia. Suharto's annexation of East Timor, which cost the lives of a third of the population, was described by the foreign minister Gareth Evans as "irreversible". As Evans succinctly put it, there were "zillions" of dollars to be made from the oil and gas reserves in the Timor Sea.

Such lethal hypocrisy was acknowledged by Australia's political and media elite only in the final spasms of the Suharto dictatorship. In 1998, the World Bank's "model pupil" finally collapsed beneath the weight of its corruption after short-term capital fled Indonesia, leaving 70 million people in abject poverty. Given the pressures on this sprawling, ethnically complex country, it is hardly surprising that extreme groups have found fertile ground, whatever their aims. To lump them in with the "global terror" of al-Qaeda serves to suppress, once again, the part that rapacious western interests have played.

Today, largely unreported, the Indonesian military, with the tacit approval of the United States, Britain and Australia, is terrorising the populations of Aceh and West Papua. Most of the "human rights violations" in these provinces - the euphemism for state terrorism - have been part and parcel of "protecting" the American Exxon oil holdings in Aceh as well as the vast Freeport copper and gold mines and BP holdings in West Papua. Those who need a link between the march of multinational capital and state terrorism need look no further.

One of the sacred taboos for western journalists and broadcasters is the terrorism of their own governments. Only when they recognise this and its pivotal role in the fate of much of humanity will they be able to report honestly the lesser terrorism of non-state groups.

Research by Edward Herman and Gerry O'Sullivan covering the period since 1965 points to the killing of several thousand people by non-state terrorists, such as al-Qaeda, compared with 2.5 million civilians killed by state-sponsored terrorism. These include the violence of the South African apartheid regime, the Suharto regime in Indonesia, the "Contras" in Nicaragua and other American-backed terrorist states. This is a conservative figure, for it predates the deaths caused by the Anglo-American-driven sanctions against civilians in Iraq. As Neil Sammonds has pointed out: "When US Secretary of State Madeleine Albright said in May 1996 that the killing of half a million Iraqi children was 'a price worth paying' to keep pressure on Baghdad, she was acting well within any reasonable definition of terrorism."

Those who committed the disgusting mass murder in Bali need to be caught and their organisation broken. But this is unlikely to happen while state terrorism is in the ascendancy, and goes unacknowledged as the most virulent menace of all - and as, in many cases, the root of non-state atrocities. A piratical assault on Iraq will be an act of terrorism by state extremists in Washington. It will also be the catalyst for years of recruitment of those willing to murder westerners in skyscrapers and nightclubs.

St Augustine tells the story of a conversation between Alexander the Great and a pirate he captured. "How dare you molest the seas?" asks Alexander. "How dare you molest the whole world?" the pirate replies. "Because I do it with a little ship only, I am called a thief. You, doing it with a great navy, are called an emperor."