Abu Bakar Bashir, the notorious Indonesian cleric who was a co-founder and spiritual leader of the terrorist Jemaah Islamiyah group responsible for the 2002 Bali bombings that killed 202 people, has been arrested on charges of involvement with a terrorist network in the province of Aceh.

Police said they suspect Bashir is behind a loose alliance of terror groups that established a training camp in Aceh with plans to launch major Mumbai-style attacks* on luxury hotel targets in Jakarta. The camp was rolled up in Aceh in February by police who have been arresting suspects connected to it for the past several months. Bashir has denied all connection with violent activity, telling reporters the charges were fabricated by the United States. Police, however, said Monday's arrest hinged on allegations that the cleric was deeply involved in terrorist activity in West Java and Aceh.

A National Police spokesman, Inspector Gen. Edward Aritonang, alleged that Bashir played what he called a "key role" in appointing ustadz, or religious teachers, to provide spiritual guidance for the Aceh group as they trained in the province's jungles. Police say the cleric also appointed Dulmatin, a master bomb maker, as field commander. Police killed Dulmatin during a raid in March at an Internet café in West Java, which police have described as a terrorism command center.

"Bashir also funded the military activity in Aceh," Aritonang said, adding that the cleric was regularly briefed on what was happening within the camp. Aceh, which had a long-running secessionist movement settled peacefully after the 2004 tsunami, is regarded as the most deeply fundamentalist province in the country and under an autonomy agreement is partly governed by sharia law.

Bashir, who has been convicted before of terror charges only to have the judgment overturned, is the country's most famous radical Islamist. With ties to the founders of the Darul Islam movement that once sought to prevent the formation of a secular state in post-independence Indonesia, he has been a target of various police operations dating back to the Suharto era. He fled into exile in the 1980s only to return in1999 to take advantage of the democratic space opened by the downfall of Suharto.

The 72-year-old Muslim cleric, who is suspected of regional terrorist connections, was once arrested and jailed (but not convicted) for his involvement with Jemaah Islamiyah, which has been linked to Al Qaeda. Bashir has always denied involvement in violence, although Jemaah Islamiyah has been found to have been involved in at least three major bombings in Indonesia.

Bashir was arrested a week after the 2002 Bali attack and accused of masterminding a series of bomb attacks on churches as well as rebellion and immigration offences. He was sentenced to four years in prison, but a charge of rebellion was dismissed on appeal and his sentence was reduced to 18 months. He was rearrested in 2004 on charges of conspiracy and inciting terrorism and sentenced to another 2-1/2 years in prison.

The Indonesian Supreme Court overturned that conviction in 2006 in a verdict that drew widespread outrage, particularly in Australia, as 88 young Australians had died in the 2002 Bali bombing. Foreign Minister Stephen Smith Monday hailed Bashir's arrest, saying "Australia welcomes the fact that Indonesian police have today arrested Abu Bakar Bashir in connection with possible terrorism-related offenses."

After the adverse reaction to the Bali bombings, in which more Indonesians died than westerners, the radicals were said by the International Crisis Group (ICG) in a 2009 report to have turned their attention to other targets. Western hotels in Jakarta have been a particular target for bombers. In July 2009, nine people were killed and 50 injured in simultaneous attacks on the neighboring J W Marriott and the Ritz-Carlton hotels in Jakarta.

Although the ICG described Bashir as "very much the elder statesman of Indonesia's radical movement," the group said he was "neither the driving force behind it now nor its leading ideologue." That assessment appears to be challenged by the current round of arrests, which police said included four people in Bandung who had established a bomb factory and planned to blow up a number of targets with car bombs. A French national whose name was not given was said to continue to be at large.

Police previously said they had arrested 12 members of an armed group, seven of whom were members of Jemaah Anshorut Tawid (JAT), which Bashir founded after resigning from the Indonesian Mujahideen Council, an umbrella group pushing for sharia law, in 2008. JAT is a radical but nominally above-ground group that seeks the immediate application of sharia across Indonesia and officially focuses on religious outreach rather than violence.

Bashir's "celebrity status and an active religious outreach (dakwah) campaign have turned Jemaah Anshorut Tawid into an organization with a nationwide structure within two years of its founding," ICG said in a July 2010 report. "It recruits through mass rallies and smaller religious instruction sessions in which Bashir and other JAT figures fulminate against democracy, advocate full application of Islamic law, and preach a militant interpretation of jihad. That public face gives 'plausible deniability' to what appears to be covert support on the part of a small inner circle for the use of force."

Police are also said to be hunting for another individual named Mustafa, alias Abu Tholut, whom they believe acted as a bridge between Bashir and the Aceh terror group. Tholut is said to be a former Jemaah Islamiyah regional commander and was also said to be a military trainer at a camp in the southern Philippines.

Bashir himself told the Jakarta Globe Friday that he shared "an emotional closeness" with Tholut, whom he said he met while in prison.

In the Globe interview, Bashir condemned the latest round of arrests, which he said were made without warrants, and the sealing of the building where he had been teaching. "We give the police 48 hours to release the arrested people and unseal the office so we can go about our business as usual," Bashir said in a press release.

"The truth is that the jihadi project has failed in Indonesia," ICG said in the July 2010 report. "The rifts and shifting alignments so evident now in the jihadi community are a reaction to that failure. There is no indication that violent extremism is gaining ground. Instead, as with JAT's formation, we are seeing the same old faces finding new packages for old goods. The far bigger challenge for Indonesia is to manage the aspirations of the thousands who join JAT rallies for its public message: that democracy is antithetical to Islam, that only an Islamic state can uphold the faith, and that Islamic law must be the source of all justice."

*Nearly 200 people were killed in Mumbai in November of 2008 by a handful of Pakistan-based terrorist commandoes who attacked luxury hotels.