(AFP) - Malaysia has been unjustly tarred with the terrorist brush and is working closely with the United States in its war on terrorism, western intelligence sources say, scoffing at a widely-publicised FBI report labelling Malaysia a "primary planning hub" for the Sept 11 attacks, they point out the same could be said of Germany or even the US itself.

The sources, privy to the interrogation of detainees here, acknowledge a link between local militants and prime suspect Osama Bin Laden's al-Qaeda operatives.

But suggestions in some international media reports recently that the Malaysian government was in some way complicit were "bullshit", one investigator told AFP .

"The Malaysian government is as scared of these guys as anybody else," the investigator said.

The government has arrested around 50 suspected Islamic militants since last May and is holding them under the Internal Security Act, which allows for detention without trial.

A key militant, Yazid Sufaat, who is known to have met three suspects later involved in the US attacks, was detained in December. Sources said he is talking, and what he has to say is being passed on the United States.

Poor PR

One reason that Malaysia is getting a negative press over terrorism is that the government's "public relations suck", said a western diplomat.

Instead of claiming credit for having arrested Yazid, the government has threatened to sue Newsweek , which published the FBI's allegation that Malaysia was a planning hub for Sept 11.

Sources said the authorities prefer to play down any link to the US attacks and to label those it has arrested as having domestic ambitions only, saying they planned to topple the government and establish a rigid Islamic state.

"Part of the problem is that (Prime Minister) Dr Mahathir (Mohamad) has to play to a domestic audience, which doesn't want to see Malaysia as a catspaw of the US," said an Asian diplomat.

He pointed out that most Malaysians are Muslims, and the government, while condemning the attacks on the US, objected to the retaliation in Afghanistan on the grounds that innocent civilians would be killed.

But beneath Mahathir's sometimes strident anti-Western rhetoric lies close cooperation with the US. Washington's ambassador here, Marie T Huhtala, who last month hailed Malaysia's efforts in fighting terrorism.

Payback time

But the question remains why Malaysia, seen as more stable than neighbouring countries with problems of Islamic militancy such as Indonesia and the Philippines, was at least a contact point for Al-Qaeda operatives involved in the US attacks.

Intelligence sources and diplomats admit they are puzzled, but offer two possible explanations.

The first is that it was "payback" time for local militants who had received training at al-Qaeda camps in Afghanistan for their own domestic "holy war".

The second is that visitors from the Middle East do not need visas to enter Malaysia and the communications infrastructure is relatively good.

Some reports have incorrectly labelled an Islamic cleric, suspected of being a key point man in the region for Al-Qaeda, as being Malaysian.

The suspect, Riduan Isamuddin, widely-known as Hambali, is in fact Indonesian, although he spent many years in Malaysia.

He is wanted by both the Malaysian and Indonesian governments, but his whereabouts are unknown.

Diplomats say another public relations lapse by the Malaysian government has been its failure to exploit the new evidence of international terror links to defend its use of detention without trial.

Mere excuses

Critics had accused the government of simply using the fear of terrorism to crack down on its domestic opposition in the Parti Islam SeMalaysia (PAS), many of whose members are among the 50 detainees.

But a senior western diplmat said he was now "prepared to give the government the benefit of the doubt".

Mahathir, meanwhile, has rejected allegations that Malaysia could have prevented the attacks on the US, saying that at the time it no intelligence suggesting the attacks were planned.

"Well, we all know that for a year or more the terrorists were training in the US and they were not arrested because the authorities did not know who they were and what they planned to do. We did not know either," he said.