Security forces on both sides of the Irish border were hunting last night for a dissident republican bomb, after intelligence reports the Real IRA has smuggled a large device into Northern Ireland from the south, the Guardian has learned.

The alert began on Monday before Continuity IRA killed PC Stephen Carroll. He will be buried tomorrow after requiem mass in his home town of Banbridge, County Down.

As border security tightened with extra checkpoints and patrols, sources in Dublin and Belfast said "intelligence traffic" indicated a plot to explode a bomb in the north, and the device had been transported across the border by car.

"The red light went up on Monday and there is a panic on that the next thing to happen is a bomb somewhere in the north," one veteran security officer said yesterday. "The problem is that no one either in the PSNI [Police Service of Northern Ireland] or the Garda appears to have specific intelligence where it is destined for." The security forces believe the device is similar in size to the 300lb car bomb that dissidents left abandoned in Castlewellan, County Down last month.

With political parties united in condemning the dissidents for the recent killings, the focus turned yesterday to peace rallies that took place in Belfast, Londonderry, Newry, Lisburn and Downpatrick. Five thousand people joined the demonstration in Belfast, with protesters bearing placards that read: "No going back."

In Dublin the taoiseach, Brian Cowen, told the Dáil that co-operation between police on both sides of the border had never been closer. He said he would be joining Northern Ireland's first minister, Peter Robinson, and deputy first minister, Martin McGuinness, in the US , where they flew yesterday for a visit lasting a week that will coincide with St Patrick's Day.

"It is important that the voices of the democratic representatives of the people are heard loud and clear at this moment, when the democratic institutions which have been established by the Irish people are being challenged," he said. "Those institutions are being challenged by a tiny and unrepresentative group of evil people who have no mandate and no support. Their actions are futile. They cannot succeed and they will not succeed."

Pope Benedict XVI yesterday described the murders in Northern Ireland as "abominable acts of terrorism".

Meanwhile, fears over possible loyalist paramilitary retaliation in response to the upsurge in Real IRA and Continuity IRA violence eased yesterday after the Ulster Defence Association ruled out revenge attacks. Jackie McDonald, UDA leader, also praised McGuinness for his condemnation of the dissidents, who killed two British soldiers and a member of the PSNI since the weekend.

McDonald said McGuinness's denunciation of the two dissident groups as "traitors to the entire island of Ireland" had instilled confidence in the loyalist community. He described McGuinness's call for republicans and nationalists to co-operate in the police inquiries to catch both killer gangs as "very helpful".

He told the Guardian there was "no danger of retaliation" by the largest loyalist paramilitary force.

"The IRA blew the two communities apart during the Troubles but the Real IRA and Continuity IRA have actually united the people like never before," the UDA's chief said while attending yesterday's peace rally at Belfast City Hall.

"There is no place in this society for [dissident republicans] but it's up to the police alone to deal with them. People on the loyalist side are determined not to fall into any more traps. That's what groups like Continuity IRA and Real IRA want us to do. There is no reason to go there again and nobody wants to go back. Loyalism has matured an awful lot in recent years."

The UDA commander also revealed that the organisation's political allies, the Ulster Political Research Group, held talks this morning with the Sinn Féin lord mayor of Belfast, Tom Hartley. Hartley later confirmed that the ground-breaking meeting between himself and the UDA's political voice had taken place.

"I think it was very important that loyalists have a role to play in the building of peace," he said. "The meeting today was the first and it was very helpful and I was encouraged by what the UPRG were saying."

A British army agent who infiltrated the South Armagh IRA for the secretive Force Research Unit predicted that the current dissident campaign could survive even without any major support base within the republican community.

The agent, known as Kevin Fulton, said today there was an intelligence gap regarding the dissidents because the British government "dismantled the security apparatus that was in place in Northern Ireland".