A year ago, one of the world's most brutal and pitiless terrorist groups, the Liberation Tigers of Tamil Eelam (LTTE), was hunted down and exterminated on a strip of beach in the far north-east of Sri Lanka.

In a war that had dragged on for 27 years, more than 80,000 on both sides had died, hundreds of thousands had lost their homes and the future of one of the most idyllic tropical islands in the world hung in the balance. Suddenly it was all over.

In defiance of all predictions, the war was brought to a swift and bloody end. The plight of tens of thousands of Tamil civilians caught in the middle was brushed aside: a Chinese veto prevented the UN Security Council from even debating the issue, let alone sending monitors to investigate. Foreign journalists were barred both from the conflict zone and the prison camps set up for Tamil survivors, as was David Miliband when the then foreign secretary flew in to try to find out what was going on. Local journalists critical of government action were terrorised into silence.

Then on the morning of 19 May, after a final gun battle lasting an hour, the bodies of 18 of the top Tiger leaders were found sprawled among the mangroves. Among them was the supreme leader, Velupillai Prabhakaran. The war was over.

It was a great victory, the emphatic end of a terrorist gang whom no one in their right mind would mourn. But it was achieved in the teeth of opposition from the US and its allies, and at appalling human and moral cost. How had it been allowed to happen?

The answer, in one word, is "China". When the US ended direct military aid in 2007 over Sri Lanka's deteriorating human rights record, China leapt into the breach, increasing aid to nearly $1bn (£690m) to become the island's biggest donor, giving tens of millions of dollars' worth of sophisticated weapons, and making a free gift of six F7 fighter jets to the Sri Lankan air force. China encouraged its ally Pakistan to sell more arms and to train pilots to fly the new planes. And, crucially, China prevented the UN Security Council from putting Sri Lanka on its agenda.

Suddenly, thanks to China's diplomacy, the hectoring of the US and Europe didn't matter any more. After nearly 500 years under the thumb of the West, the immensely strategic little island in the Indian Ocean had a new sugar daddy – one with a very different conception of its duties. Sri Lanka's "traditional donors" had "receded into a distant corner", the country's Foreign Secretary, Palitha Kohona, told The New York Times in 2008. "Asians don't go around teaching each other how to behave," he said. "There are ways we deal with each other – perhaps a quiet word, but not wagging the finger."

Money, arms and diplomatic cover are necessary preconditions for taking a war to its logical conclusion, but they are not enough. Also required is ideological cover: a casus belli that must go beyond the thirst for revenge, communal hatred or the urge of the majority to impose its will permanently on the minority. It must be possible to sell it as a just war. For this purpose, as Bob Dylan recognised a long time back ("With God on our side"), religion comes in handy.

Enter the Sinhalese Buddhists.

We in the West by and large have a pretty foggy understanding of Buddhism, but one thing we know for certain is that Buddhists are for peace. So the idea that the war party in Sri Lanka – not just in the past five years but throughout the years of independence – was identifiable with Buddhist monks does not sound right. It's like finding Trappist monks engaged in a talk-athon or Orthodox Jews running a pork pie factory.

Buddhists don't do war. Look at the Dalai Lama: for 50 years he has strained every fibre to prevent Tibetan resistance to Chinese oppression turning violent. He has a great line on this challenge: "In the practice of tolerance, one's enemy is the best teacher."

Up close, Sinhalese Buddhism looks as harmless and pacific as any other variety. Visit any temple in the country during Poya or full moon day, a monthly national religious holiday on the island, and you will find scenes of perfect serenity as families dressed all in white offer food to the monks in their saffron robes, then picnic under the trees or stroll around the whitewashed stupa.

By contrast, listen to the words of the Venerable Athuraliye Rathana in 2002: "There are two central concepts of Buddhism," the monk said, "compassion and wisdom. If compassion was a necessary and sufficient condition, then the Buddha would not have elaborated on wisdom or prajna. Hitler could not have been overcome by maitriya [compassion] alone. Today there is a discourse about peace in Sri Lanka. It is an extremely artificial exercise and one that is clearly being orchestrated under threat of terrorist attack."

Imagine those words coming from the mouth of the Dalai Lama and you get an idea of how sharply the views of some Sri Lankan monks diverge from the pacific Buddhist norm. He is not saying "bomb the hell out of the Tigers, as the Allies destroyed Hitler". But the implication is clear enough.

How did Sri Lankan Buddhism veer off so sharply from the other schools? Buddhism was born in northern India in the 6th century BC, and spread throughout the subcontinent and beyond. But eight or nine hundred years later it began to lose ground to new schools of devotional Hinduism, which steadily supplanted it. Eventually it disappeared from the Indian mainland altogether.

Buddhist monks in Sri Lanka watched this process with alarm, and hatched a way to stop it at the coast: they wrote a new book of scripture, the Mahavamsa, to establish indissoluble links between the historical Buddha and their island. The Mahavamsa claimed that the Buddha had visited Sri Lanka three times and had declared it "dhammadipa", "the island of righteousness" – a sort of Buddhist Promised Land, where the Sinhalese should rule and Buddhism should be unchallenged. The Mahavamsa, although not accepted by scholars as a core teaching, helped to ensure that the island remained Buddhism's last remaining outpost in the subcontinent. But there was a price to pay: a vein of intolerant chauvinism, inimical to the religion elsewhere, became part of its permanent baggage.

After independence in 1948, Sri Lanka's Buddhists established themselves as a fierce, intimidating nationalist presence. Although the fourth prime minister, Solomon Bandaranaike, had done the Buddhists' bidding in making Sinhala the official language, he temporised over Buddhists taking over schools run by Christians. So in September 1959, a monk called Talduwe Somarama pulled a revolver out of his robes and shot him dead.

When Mahinda Rajapaksa won the general election of 2004 to become Prime Minister, the Norwegian-negotiated ceasefire of 2002 was already unravelling. One year later, he became President, but even though the island's peace was increasingly fragile, it was still unclear where his policy was headed. His party, the Sri Lanka Freedom Party (founded by Bandaranaike), was, like the opposition, still supposedly committed to the stuttering peace process. The champions of all-out war were limited to 10 newly elected monk MPs and another small extremist party.

Then, in August 2005, the Tigers assassinated Lakshman Kadirgamar, Sri Lanka's highly regarded foreign secretary, himself a Tamil, and peace quite suddenly disappeared from the scene. The following April, the Tigers abruptly cancelled scheduled peace talks in Geneva, and six days later Rajapaksa's new army chief, General Sarath Fonseka, was nearly killed by a Tiger suicide bomb. As the war shadows deepened, monks were again on hand to hurry things along.

On 21 July, the Tigers shut off sluice gates to a reservoir near Trincomalee in the north-east, depriving nearly 30,000 people, many of them recent Sinhalese settlers, of drinking water and water for their fields. A group of politicised monks rushed to a temple near the reservoir and announced that they were going to march on the Tigers' lines and fight them to the death.

It was merely a stunt: as one Sri Lankan journalist who covered the event recalled, "they did not have the numbers or the public support to take on the LTTE during the march. As they were walking they were stopped by the military." But it succeeded in sparking the new war: the air force attacked Tiger positions on 26 July, after which ground troops began the operation to take charge of the gates. The war's final phase was under way.

Like it or not, the pax sinica is spreading across the world: in return for getting the West off Sri Lanka's back, the Chinese got to build a new port at Hambantota on the south coast, a vital link in the "string of pearls" they are constructing across the Indian Ocean, from Burma to Pakistan. But just as significant as the success of the Chinese is the failure of the Western model.

The annihilation of the Tigers took practically everybody by surprise. Sri Lanka had been battling it out against the improvised forces of the Tigers since 1983, but victory never seemed close. Under its charismatic founder and leader, the Tigers fought with fanatical zeal in jungle terrain that was ideal for guerrilla warfare, and the government troops, with their cautious, conventional tactics, were no match for them. Whenever victory seemed on the cards, heavy pressure from India and the West brought the two sides to the negotiating table. A ceasefire signed in 2002 was greeted by the outside world as a major step towards achieving a federal solution. That agreement slowly unravelled, but when the war restarted informally in July 2006, the Tigers still controlled nearly one-third of the island.

By spring last year, the Tigers had lost nearly all their territory and were boxed into 85 square kilometres of jungle – but even then, outright government victory seemed improbable.

Why? Because however brutal their tactics, the Tigers had succeeded in establishing the idea that the Tamils, discriminated against for many years by the Sinhalese majority, were entitled to their own homeland. The conventional wisdom held that this war neither could nor should have a military outcome, but a diplomatic one. Like errant children, both sides would eventually come round: a ceasefire, peace talks, some kind of settlement imposed by pressure from the West and facilitated by the Norwegians was the only way out of the mess, however unsatisfactory. The Tamils would run their side of the island, the Sinhalese would run theirs.

There were plenty of arguments against such a resolution. For one thing, the island's Tamils are by no means confined to the north and the east. Under British rule, Tamils were favoured for government jobs; today Tamils constitute a majority of the population of the capital, Colombo. At the other end of the social scale, tens of thousands of poor Tamil peasants were brought in under the Raj as indentured labour to work on the tea estates. Both Colombo and the estates were well outside the region the Tigers wanted for its sovereign state. But in a small island polarised between warring ethnic groups, and with a history of ethnic cleansing on both sides, what sort of future could Tamils outside "Eelam" look forward to?

But the prospects for Tamils who found themselves inside the state that Prabhakaran wanted to carve out of the island were hardly more promising. During his 25 years in control, the guerrilla leader had been distinguished by one characteristic above all: utter ruthlessness. He had eliminated every possible rival for power, killing all moderate and pacific Tamil leaders as well as those who favoured the gun. He had subjected Tamils both inside the island and in the diaspora to punitive taxes to fund his war, and had forced thousands of families to give up their children to fight as soldiers. He had ordered pogroms against Muslims in the area he controlled, forcing thousands of them to flee, as well as massacring Sinhalese civilians.

Within the ranks of his guerrilla army he demanded total dedication, inventing the suicide bomb as a weapon of war and requiring his cadres to carry cyanide capsules so they could kill themselves rather than submit to enemy interrogation. On the rare occasions he appeared in public, including his one and only press conference in 2002, he always wore military fatigues, cultivating the image of the single-minded guerrilla leader – but family snaps unearthed after his death showed him living in luxury.

His challenge in 2002 was to convince the world that the man who had ordered the assassinations of both the Indian prime minister, Rajiv Gandhi, and the Sri Lankan president, Ranasinghe Premadasa, was capable of re-inventing himself, Sinn Fein-style, as a civilian leader worthy of international respect. But it was a transformation that proved well beyond him: his reflexive response to any crisis remained the same – to murder the people he held responsible. The idea that a man of his kidney could run a plausible democratic state was one of the sicker jokes of the decadent period of US diplomatic hegemony.

But even if Prabhakaran had turned out to possess the political gifts of a Gerry Adams, there is a strong argument to be made that the West had no business trying to dictate peace terms to the legitimate government of the island, faced with an astonishingly brutal insurgency.

The reuniting of Sri Lanka under Sinhalese domination fills many in the minority community with foreboding: a Tamil businessman in Trincomalee told me that he fears the arrival of another wave of government-sponsored Sinhalese colonisation. He also talked of how the new arrivals impose their symbolic presence by installing Buddha statues.