Security experts see growing signs of a link between Al Qaeda (search) and home-grown terrorists in the Philippines, raising fears that attacks against the United States could be launched from a country that used to be a U.S. colony.

"The terrorist threat in the Philippines has gone to a high point, especially with the concentration of Al Qaeda morphed into a group called Jemaah Islamiyah (search)," said Gen. Avelino Razon, director of the Philippine National Police.

Intelligence reports indicate that longtime separatist groups that have been fighting the Filipino government for an independent Islamic state are hooking up with Al Qaeda and Jemaah Islamiyah, Southeast Asia's version of Al Qaeda, which has been designated by the U.S. State Department as a foreign terrorist organization.

Jemaah Islamiyah has been blamed for a string of attacks in that region, including the 2002 Bali hotel bombing that killed 202 people, a blast at Jakarta's J.W. Marriott hotel the following year that killed 12 and the Australian embassy bombing in Jakarta last September that killed 10.

Just this week, a letter written by a member of the Jemaah Islamiyah said the group is planning an attack similar to the 2002 Bali nightclub bombings, said Singapore's minister of home affairs, Wong Kan Seng. Indonesia authorities seized some documents after a homicide car bombing at the Australian Embassy but it was unclear if the letter was among them.

Terrorists connected to the Philippine separatist group Abu Sayyaf (search) — also designated a terrorist group by the United States — are accused of setting off a bomb on a Manila ferry boat last year, killing 116 people.

And now, there's evidence these groups — and others — have formed an alliance, sharing training and cash for jihad while hiding out in the mostly lawless southern Philippine province of Mindanao. There's also intelligence that these groups are targeting military and commercial ships outside of the region.

"In many ways, Mindanao, if it's not paid attention to ... if we don't focus … it could turn into another Afghanistan," said Joe Mussomeli, charge d'affairs at the U.S. Embassy in the Philippines. "For the potential danger to the U.S. and the region, yes, it [Philippines] is one of the front lines."

Fighting for Islam

While in Manila, FOX News interviewed Abu Sayyaf operative Gamal Baharan (search), who confessed to a Feb. 14 Manila bus bombing that killed three and injured more than 100. Another operative, Abu Khalil (search), also confessed to that blast, which coincided with two other attacks in the country within minutes of each other.

"We're all fighting all over the world," Khalil told FOX News. "All of us are doing this for one reason: for Islam."

After his arrest, Baharan told authorities he took scuba lessons so that he could learn to attach explosives to the hull of a ship. He told FOX News that his orders came from someone outside the Philippines who spoke Arabic.

"All I know is, they hate America," Baharan said of his superiors.

Baharan has been speaking with Philippine authorities ever since his capture but some of his claims seem far-fetched. For example, he claims that Usama bin Laden himself has been keeping tabs on the scuba training via satellite phone. But others seem credible and highly worrisome, primarily that the training is for underwater operations outside of Southeast Asia.

Intelligence experts say it's likely the ultimate goal of underwater training is attacks against U.S. Navy and commercial ships. To stop them, the U.S. Coast Guard has developed a sonar defense system that's so sensitive operators will be able to distinguish between human swimmers and dolphins and give ample warning of an impending attack.

The Philippines has no such technology, however, and security officials there are worried about a homegrown enemy that appears to be shifting its focus from seeking independence to holy war.

The U.S. military recently finished training two anti-terrorism companies in the Filipino army to familiarize them with night-vision goggles, M-4 rifles and assault vehicles. Critics of the Filipino military, however, say it's just a fraction of what they need.

"We don't have a good maritime operation; the navy is helpless. The air force is nothing. We have the air, but we don't have the force," said Erick San Juan, former assistant national security advisor in the Philippines.

The United States is also paying Filipinos for information that could bring down a terrorist. The State Department's Rewards for Justice (search) program recently made its first payout — $1 million to three tipsters — whose identities were concealed for their own safety.

"There are a lot of people who are fed up with the terrorist groups, especially in this country, but they're afraid to say things," Mussomeli said. "The money not only is enticement, it's also a protection."

Military and counter-terrorism spending in the Philippines by the United States is now approaching $100 million per year. Add to that an equal amount of humanitarian aid and the American taxpayer's investment in this country has never been costlier. But scaling back, local politicians warn, could cost a lot more.

"By assisting the Philippines, you assist your country. You prevent elements from being trained out here to wreak havoc in any number of places," said Richard Gordon, a Filipino senator.

Too little assistance gives the edge to the Muslim extremists but if the American footprint is too heavy, some believe, it breeds resentment and more terrorists in the Southeast Asia region.

Shutting Down the 'Terrorist Factory'

When the arrest of Palestinian Fawas Ajjur (search) was announced last month, President Gloria Arroyo called it an important blow against terrorism.

Two former Abu Sayyaf militants told authorities that Ajjur had trained them in bomb-making at a terrorist camp in the southern Philippines and officials believe Ajjur was returning to the country to carry out attacks, avenging the deaths of 19 terrorist commanders during a March prison riot.

Leading up to his arrival in the Philippines, Ajjur flew from the Ukraine to Thailand, where he stayed a week and was wired money. He took a train to Malaysia, then a plane to the Philippines, where he arrived with little money and no visa. There were explosives found and attacks along the way.

To some in counterterrorism, the arrests are further proof that Al Qaeda and other Islamic extremists are getting a stronger foothold in the Philippines.

"What we have here is some sort of a terrorist factory that we should stop," Razon said.

Terrorism is a constant concern in the Philippines, but this week, in particular, the police are on heightened alert as 1,300 delegates from around the world, including 40 high-ranking elected officials, are in Manila for a conference. There are 15,000 police devoted to protecting them.

Cars are checked at intersections and bomb-sniffing dogs greet patrons at hotels and shopping centers. High-profile arrests are about a weekly occurrence.

But Ajjur's arrest has some feeling confident in progress being made to quash terrorism there.

"With the capture of the terrorists here in metro Manila, with the capture of terrorists in Davao, we're getting the upper hand," said Lt. Col. Buenaventura Pascual of the Philippine army.

Click on the video box above for a series of reports from the Philippines.

Dan Springer joined Fox News Channel (FNC) in August 2001 as a Seattle-based correspondent.