Hopes for a peaceful end to the 10-year war in Afghanistan were in tatters after a suicide bomber with explosives concealed in his turban killed Hamid Karzai's chief peace envoy.

The assassination of Burhanuddin Rabbani by men posing as leading Taliban envoys looked certain to tip the country even deeper into crisis. Rabbani was a former president of Afghanistan, respected religious scholar and chairman of the country's high peace council.

The explosion in the heart of Kabul's diplomatic district kills off a peace process that was already on life support. It also deprives President Karzai of an important ally who had flown into Kabul specifically to meet the men claiming to be Taliban envoys and emboldens his enemies who are implacably opposed to the idea of powersharing with armed insurgents.

"This absolutely shows that peace with the Taliban is dead," said Ahmed Wali Massoud, the brother of a famous anti-Taliban guerrilla leader who was killed by suicide bombers days before the terrorist attacks of September 11. "It doesn't work, it won't work," he added.

The high peace council, a body set up last year by Karzai, has been trying to get talks off the ground against an increasingly inauspicious background.

Insurgent groups have stepped up their attacks, not least launching spectacular assaults in the Afghan capital and assassinating key Karzai allies. And a set of secret talks mediated by the German government with a senior Taliban official has already collapsed.

Last week Rabbani led a conference of provincial governors and officials in the southern city of Kandahar to develop policies for reintegrating insurgents who want to give up the fight.

Not surprisingly a meeting with two men claiming to be senior Taliban officials was the first thing on Rabbani's agenda after flying back to Kabul from a subsequent trip to Dubai.

According to an aide to Rabbani they said they represented the Quetta Shura, the Taliban's governing body, and had an important message to deliver.

Not only were the visitors deemed too important to search thoroughly, inspecting a turban is still generally seen as disrespectful, even though there have been three other cases this year of the headgear used to conceal bombs.

The aide said that when Rabbani entered the room one of them approached him, hugging him tight and placing his head on his victim's chest.

Shopkeepers nearby heard a muffled bang from inside the building, which was still loud enough to set off the "duck and cover" alarms at the US embassy a short distance away.

The former president was killed instantly while four others in the room were injured, including Masoom Stanekzai, a highly-regarded technocrat who runs the day-to-day operations of the peace council and had brought the men to Rabbani's house. The second man was also seriously injured. His turban was burning when he was found, according to an official from the country's interior ministry. He was taken to hospital, where strenuous efforts were made to keep him alive in the hope he would help investigators with their enquiries.

On hearing the news Karzai scrapped plans to participate at the United Nations general assembly and announced that he would immediately return from New York to Kabul.

Rabbani's killing is also looks set to exacerbate already acute ethnic tensions in the country. A Tajik and former warlord from northern Afghanistan who fought against the Taliban, Rabbani was a controversial choice as a point man on reconciliation issues.

But although many observers argued that the Taliban would never take a man with his background seriously, his appointment was also designed to appease northern, non-Pashtun Afghans who were deeply suspicious of any peace deals.

Haroun Mir, a political analyst with a background in northern mujahideen groups, said the death would "increase the ethnic and geographic divide" in Afghanistan.

"There were voices in the north that were critical of the peace process, but because of Rabbani's involvement, and because he was so respected, they kept quiet. These more critical voices will not now remain quiet."

Abdullah Abdullah, the country's leading opposition figure, said the death of Rabbani showed the insurgents were trying to wipe out the political figures who ruled the country before the emergence of the Taliban in the 1990s.

"We should recognise and know our enemy from lower ranks up to the top officials of the country because by any means, by any way, they are trying to kill us and eliminate all high ranking officials and jihadi leaders."

Former intelligence chief Amrullah Saleh, a northerner who has warned in the past that the north might be forced to rearm if a Karzai cut a "deal" with the Taliban, once again warned of the risk of "civil unrest".

"The killing of Rabbani who had devoted his life to serving Afghanistan and to peace once again reminds us that reconciliation cannot be possible from a position of weakness but strength only," he said.

"It is time for us to unite for change and for defeat of the Taliban."