In Malaysia's current political climate, it is no longer possible to distinguish Islamic radicals from Islamic moderates. Despite official boasting about the country's diverse population and commitment to pluralism, Islam and the government have essentially merged.

For two decades, the ruling United Malays National Organisation (UMNO) government invested enormous public resources in building up a network of Islamic institutions. The government's initial intention was to deflect radical demands for an extreme version of Islamic governance. Over time, however, the effort to out-do its critics led the UMNO to over-Islamicise the state.

The UMNO's programme has put Sharia law, Sharia courts, and an extensive Islamic bureaucracy in place, a collective effort that has taken on a life of its own. The number of Islamic laws instituted has quadrupled in just over 10 years. After Iran or Saudi Arabia, Malaysia's Sharia court system is probably the most extensive in the Muslim world, and the accompanying bureaucracy is not only big but has more bite than the national parliament.

Islamic laws in Malaysia are based on religious doctrine but codified and passed as statutes by state parliaments. Not much debate attends their enactment, because a fear of heresy keeps most critics from questioning anything deemed Islamic. While the UMNO still trumpets its Islamic advocacy, the party is facing difficult choices, particularly as it wishes to maintain foreign investment in an increasingly polarised environment.

For example, Minister of Home Affairs Hishamuddin Hussein recently held a press conference to support Muslims who demonstrated against the construction of a Hindu temple in their neighbourhood. The protesters paraded a severed, bloodied cow's head in the street, then spat and stomped on it. This was an offence to Malaysia's Hindus, who consider the cow a sacred animal.

Just a week earlier, a young mother by the name of Kartika was sentenced by Malaysia's Sharia court to six lashes by cane and fined $1,500 after she was caught drinking beer at a hotel. Although the sentence is still in limbo, Hussein publicised his acceptance of the punishment by inviting the official floggers to his office to demonstrate how an Islamic caning would be carried out. They used a chair as a mock target, leaving him satisfied that Islamic caning can be appropriately used as a punishment for women.

Ironically, Hishamuddin Hussein is far from an Islamic hard-liner. The son of Malaysia's third prime minister and a cousin of the current prime minister, he is widely considered modern, moderate and cosmopolitan. A true hard-liner is Nik Aziz, the chief minister of Kelantan state, who is also the spiritual leader of Malaysia's largest Islamic party, PAS, which now controls two state governments. However, Aziz opposed the anti-Hindu protest, even calling a group of anti-Muslim protesters in the United Kingdom more civilised in their approach.

Hence, it is no longer accurate to think of the PAS as a fundamentalist party and the UMNO as moderate. Party strategies are leading them in unexpected directions. The UMNO's more radical turn is being matched by the PAS' attempts at moderation. The PAS is aiming for the most unlikely of voters: non-Muslims, who account for 40 per cent of Malaysia's population and are increasingly alienated from the UMNO.

The UMNO, meanwhile, is intent on dividing the opposition coalition, of which the PAS is a member. The coalition is currently led by former Deputy Prime Minister Anwar Ibrahim, and has picked up political momentum from real gains in last year's general election.

Concerned by its losses, the UMNO has staked a claim to the defence of Islam in Malaysia. The "cow head" protest, which was led by UMNO members, quickly fuelled racially charged manipulation of public sentiment. The formula is simple: portray Islam as being threatened by infidels, and then have the UMNO ride to the rescue of the besieged Muslim community.

The caning of Kartika, on the other hand, is not an example of political manipulation, and for this reason is perhaps even more worrisome. Her sentence was roundly supported by modernist Muslim intellectuals, who insisted that the punishment was justly applied and cannot be questioned because it has divine sanction. These are not politicians, but former idealists who are happy that their goals of Islamicising the state are being realised. Most are anti-UMNO and support the PAS.

As a result, the UMNO finds itself squeezed between an Islamic lobby that presses for greater "Talibanisation" of the country and the rising voices of international critics, who cannot be ignored, because the party needs both radical supporters and foreign investors to stay in power.

Balancing these two constituencies is becoming increasingly difficult for the UMNO. Islamic politics has now taken on a life of its own. But the opposition will also be forced to figure out the role of religion in Malaysia, if ever they get an opportunity to form a government. As a young Islamic radical, Anwar Ibrahim used to ask: How does one Islamicise government? Now he has to figure out how one governs it.