You were at a conference on counterterrorism sponsored by the State Department with people from the U.S. government. What did you feel you needed to say about Saudi Arabia, and why?

The discussion was about the Taliban and the network of Taliban-like groups that span across Pakistan and Kashmir and India. Among the academics and government people who were there, there were a lot of questions as to who inspires them, where does the funding come from, and how can these networks be supported on the ground.

These are Islamic fundamentalist extremist groups in the region?

Exactly. It's the very groups that we're confronting now -- namely the Taliban and those groups in Pakistan that are supporting them and are orchestrating the demonstrations against the United States and are threatening the conduct of the war -- as well as those who are active right now in Kashmir and are precipitating additional conflict between India and Pakistan.

What do you say?

All of these groups are rooted in a network of seminaries, or as the term is called in the local vernacular, "madrassa." My argument was that the main source of funding for these groups is Saudi Arabia. In fact, this whole phenomenon that we are confronting, which Al Qaeda is a part of, is very closely associated with Saudi Arabia's financial and religious projects for the Muslim world as a whole. ...

You said that the main source of funding for these Islamic extremists--

Or at least the institutions that train them.

-- is whom?

It's Saudi Arabia and its network of charities and the like. The argument I make is that there is an undercurrent of terror and fanaticism that go hand in hand in the Afghanistan-Pakistan arc, and extends all the way to Uzbekistan. And you can see reflections of it in Bosnia, in Kosovo, in Indonesia, in the Philippines.

For instance, in one madrassa in Pakistan, I interviewed 70 Malaysian and Thai students who are being educated side by side with students who went on to the Afghan war and the like. These people return to their countries, and then we see the results in a short while. ... At best, they become hot-headed preachers in mosques that encourage fighting Christians in Nigeria or in Indonesia. And in a worst case, they actually recruit or participate in terror acts.

So you're saying that Saudi Arabia is funding the milieu, if you will, the atmosphere, from which this Islamic extremism has emerged?

That's correct. Saudi Arabia has been the single biggest source of funding for fanatical interpretations of Islam, and the embodiment of that interpretation in organizations and schools has created a self-perpetuating institutional basis for promoting fanaticism across the Muslim world. ... There is no other state who spends as much money at ensuring conservatism and fanaticism among Muslims. ...

What you're saying is that if we wanted to look for the causes of what's happened -- Al Qaeda and the movement worldwide -- we would have to look to the schools, to the educational system which Saudi Arabia has fostered in the Islamic world?

There is no single cause for something like this. But there are a series of causes, and Saudi Arabia is responsible [for] one of them. In order to have terrorists, in order to have supporters for terrorists, in order to have people who are willing to interpret religion in violent ways, in order to have people who are willing to legitimate crashing yourself into a building and killing 5,000 innocent people, you need particular interpretations of Islam.

Those interpretations of Islam are being propagated out of schools that receive organizational and financial funding from Saudi Arabia. In fact, I would push it further: that these schools would not have existed without Saudi funding. They would not have proliferated across Pakistan and India and Afghanistan without Saudi funding. They would not have had the kind of prowess that they have without Saudi funding, and they would not have trained as many people without Saudi funding.

Today's New York Times reports that 15 or the 19 hijackers apparently not only had Saudi papers -- that is, passports -- but may in fact be Saudi. Is that significant?

Yes, it is significant because it signals something about domestic politics in Saudi Arabia. It signals that there is disgruntlement, there is unhappiness with the regime, that the regime is losing touch with the population, and there is a violent movement [brewing] against the regime.

Now, why these people join Al Qaeda is because, in Saudi minds as well as in most Muslim thinking in the region, the United States is part of Saudi's domestic politics. U.S. forces in Saudi Arabia are viewed as, I would say, the "Republican Guards" of Saudi Arabia. It is the Saudi regime's last line of defense.

Average Muslims on the street don't believe we're there to protect Saudi Arabia from Iraq. We're there to protect the Saud family from its population. If the population wants to change a regime, it believes it has to go through the United States. And that's where the dots come together.

It's not just that the United States is present in the holy land -- that obviously undermines the legitimacy of a regime that needs to ask non-Muslims to come and protect it. But more importantly, it means that that regime now has a very strong military stick in order to ensure and perpetuate its power. It doesn't need to negotiate with its population. It doesn't need to conduct politics in ways in which it did before the United States came. So as a result, dissent in Saudi Arabia is increasingly going to be anti-American.

But Prince Bandar says this idea of foreign troops being in Saudi Arabia, he says that's bunk. Saudi Arabia is just a bunch of sand. Yes, Mecca and Medina, that would be different. But they've had foreign troops before. So he said this is some construct of people who don't understand Islam.

That's possibly true, but all politics is about perception.

What do you mean?

The perception is that there's a large U.S. presence in Saudi Arabia. The perception is that this is significant. The perception is that it delegitimates the Saudi dynasty. And the perception is that those troops are there to protect this regime, at least in part, or that they will protect this regime if it is challenged.

Now the fact is that, previously in history, there have been foreign troops is correct. The United States is, in fact, singularly responsible for the creation of Saudi Arabia. There's no country in the Middle East with which we are as intertwined as Saudi Arabia. American oil companies ensured the rise of the Saud family, ensured the dominance of Saud family over Saudi Arabia. The very fact that the peninsula was integrated together into one single kingdom, one single nation state, has a lot to do with U.S. presence in the country. ...

Saudi Arabia can't have it both ways. The title of the Saudi king is the protector of the two holy sites. So the Saudi regime has taken upon itself to be the protector of the two holy sites. It is a sign of its emasculation, basically, if it has to rely on foreign troops to protect it...

What is a madrassa?

It's a seminary. It's where students of different ages, as young as nine or ten, go to learn religious education and to be schooled first of all in reading and then in religious studies. In the old times, it substituted for regular elementary education and higher education, and ultimately produces quote, unquote, clerics. In other words, scholars, preachers, you know, religious community leaders who conduct the religious affairs of a community.

But you're saying the influence of the Saudis in these schools has been to create a certain kind of Islam, not your mainstream Islam?

Well, first of all, because of the Afghan war, we have a new kind of madrassa emerging in Pakistan-Afghanistan area.

And throughout Central Asia, right?

They've been spreading throughout Central Asia, but there have been Central Asian students, Filipino students, Indonesian students, Nigerian students, Arab students, thanks to scholarship funding provided from Persian Gulf and Saudi Arabia, that have been going to these schools.

And I'm also told in Kurdistan and all kinds of places.

All kinds of places. Now these Afghan madrassas, how they differ from the traditional madrassas is that they were not really so much concerned about scholarship. They were more concerned about training religious fighters who would go into the Afghan field and fight. I mean, the phenomenon of Taliban, meaning religious seminary students--

That's what the word means.

The word means. Who are they? Are they budding preachers? Are they scholars? How much scholarship do they have? Are they better trained in throwing grenades than interpreting religious law? These are all open questions.

So you have the whole rise of, if you would, Islamic West Points, or Islamic military camps, Islamic guerilla camps along the border, which mix a dosage of Islam with a lot of military training. Then they also train a new generation of mosque leaders and clerics who go open their own madrassas or go populate mosques from Jakarta to Rabat.

But I thought that in the 1980s, when the Saudis started to really spend a lot of money on this, that they were doing this in a sense with our approval to help isolate Iran and the rise of fundamentalist Shiism?

Yes. Well, the first generation of madrassas, [from] which many of these Northern Alliance people also came, were organized to fight the Afghan war against the Soviet Union. This was obviously the cause.

So they were basically recruiting schools?

They were recruiting, organizing schools which also use Islamic ideology as a way of creating a very efficient guerilla army with a very clear anti-communist ideology.

So what's wrong with that?

Nothing. We're dealing with the sort of unintended consequences of that, and particularly because the United States didn't really properly clean up after it left Afghanistan. We left it in the hands of the Pakistanis and the Saudis. Pakistanis began to see all kinds of possibilities for Afghanistan. They particularly did not want Pashtun nationalism, which had always been a menace, to be out of their control. So they've used the Taliban as a way of controlling Afghanistan. ...

So what you're saying is that the Saudi effort to set up these schools, to recruit people to fight in Afghanistan and to spread their version of Islam, has come back to haunt us?

Yes. In the 1980s and 1990s, as you mentioned, this was also a very useful way of creating a very ardent Sunni wall around Iran. When the threat of Shiism and Iran was seen to be paramount, the United States turned a blind eye to Pakistan and Saudi Arabia organizing the Taliban, propagating hard-line Sunni thinking within Pakistan, and then trying to push it all the way into Central Asia. I mean, if you look, ever since Uzbekistan, Tajikistan, Turkmenistan, these Central Asia--

Former Soviet republics.

Right. Ever since they've become independent, who is the main source of Islamic fundamentalism there? It's not Iran. It's closely associated with the Pakistani-Saudi combine. ...

Secondly, the Afghan war is over; it has been over for a while. The question becomes, what do you do with the leftovers of the war? And what is in place is, if you would, a whole mechanism and a machine that include the Taliban, the madrassas, the fanatics in Pakistan and the financial linkages to Persian Gulf that's been ongoing.

We thought Al Qaeda was separate from this. ... We assumed for a long time that Taliban were merely giving refuge to Al Qaeda. We didn't realize the extent to which that Al Qaeda is literally running Afghanistan.

And Pakistan wasn't able to control either?

I'm not sure we ever asked Pakistan to control.

Thirdly, what we didn't realize is that Al Qaeda is not just a group of terrorists taking refuge in Afghanistan. The network of Arabs, Southeast Asians, Africans, East Africans, Central Asians is far wider, with far more potential for damage in the long run than we assumed before. ...

Is it possible that this network of madrassas and other groups in Pakistan and elsewhere, going back to Saudi Arabia, is also providing the funding for Al Qaeda?

It's possible. First of all, I haven't seen any evidence that they were lacking for funding in the past two, three years. In fact, if anything, the scope of their activities has been increasing -- the amount of armaments is going up, the ability to create patronage systems, provide support to communities, to schools and therefore expand their influence -- has been on the rise, not on the decline.

This is bin Laden's network?

This is the whole madrassa-Taliban network. In other words, I don't see any wanting for funding in the past two, three years.

Secondly, Saudi Arabia may have just turned off the official funding. There is an enormous amount of unofficial funding that has been going through Saudi Arabia and United Arab Emirates to Pakistan and Afghanistan.

How?

Through religious clerics, through merchants, through expatriates, Pakistanis and Afghans, who are there, or Arabs from the rest of the Middle East, Egyptians, East Africans who are there, who have access to wealth or who have connections and who have been funneling money back into that region. ... Some of the money comes directly to sort of the big madrassas, or the big religious leaders, who then distribute it through patronage network. So some madrassas may not have direct contact with Saudi Arabia.

Some larger religious leaders and religious madrassas do. But ultimately, there is a substantial source of funding for keeping a whole network of madrassas and guerilla armies that have been conquering Afghanistan, and have been, expanding power in Pakistan. And have been able to support recruitment, education, social services, and the like. The origins of this funding was from Saudi Arabia, and there's regular evidence that it's continuing. ...

What about the charities?

The charities fall into that category. In Saudi Arabia, in the Arab world, there's no such thing as an NGO. ...

In Saudi Arabia, there's no such thing as a nongovernmental organization?

Right. This is a country in which the government has tight control of the economy and society. It is very unfathomable to think that an organization could defy the security services in Saudi Arabia and keep funding an organization abroad that Saudi Arabia is not keen on.

So when Prince Bandar says to us, "Look, we're Muslims. We have no taxes in Saudi Arabia, but we have to give money to charities, that's part of our religious requirement. But that's done to assist people in different societies. It has nothing to do with funding terrorism. My government would never allow that to happen." ...

That's all very valid at face value. But money is given by -- whether it's merchant organizations or members of the clergy who collect somebody else's religious tax -- it's given to madrassas that are training Taliban or associated with Al Qaeda. Then that is basically trying to turn a blind eye to a glaring problem.

Who goes to these madrassas?

They are recruited from among the lower classes and lower-middle classes. In the Afghan-Pakistan arena, there are members of Pashtun tribes who enroll in these madrassas. There are peasant children from the peasant backgrounds. And occasionally there are also lower middle-class children they are very able to recruit among people in Pakistan particularly who don't have any access to any other kind of schooling. ...

That's why the ideology that's propagated by these schools is so significant in shaping minds in the Muslim world. So if regular schooling is not schooling people and schools that propagate fanaticism are schooling people, it doesn't take a brain surgeon to figure out what would be the impact on society.

And this is a peculiar form of Islamic teaching, peculiar to Saudi Arabia, that dominates in these schools?

Increasingly so.

What do you mean, increasingly?

Well, Saudi Arabia has its own particular interpretation of Islam which is very legalistic, is very austere, it's very black-and-white.

This is the so-called Wahhabi?

This is the so-called Wahhabi put in a very, very narrow nutshell. It's extreme orthodoxy, if you would. It's sort of an extreme orthodoxy that historically has not been shared by a majority of Muslims, particularly nobody outside of the Arabian Peninsula.

The way in which Saudi Arabia has influence in these madrassas is influencing particular teachings one step at a time. In other words, if you had a comparable situation in Christian with one church would begin to dictate to other churches what they should say about abortion first, then about fundamental issues in Christianity, then you know, one tenet at the time, because it had the power of the purse over them. You wouldn't have an outright conversion of one denomination or church to another. What you would have is a growing influence where those who are receiving money would begin to reflect the ideas of the fundgiver.

Is there a connection between the fundamentalism of the Taliban and the fundamentalism of the Wahhabi?

The connection has been growing very, very strong in the past 20 years, and particularly in the past ten years. The dominant school of Islam with which the Taliban associate -- which is known as the Deobandi school -- is very prominent in Afghanistan and also in wide areas of Pakistan. Northern India has increasingly gravitated toward Wahhabi teaching, and has very, very strong organizational ties with various Wahhabi religious leaders.

When we saw the Taliban destroy the Buddhist statues and other artifacts in Afghanistan, is that similar to a Wahhabi view?

Yes, yes. Because Wahhabis don't believe in tombstones, don't believe in images being acceptable, don't believe in statues. They believe all of these are forms of polytheism. A majority of Muslims don't share that degree of literal reading of religious texts or banning of these kinds of reflections. ...

And the Wahhabis dominate in Saudi Arabia?

The Wahhabis dominate in Saudi Arabia, with also significant influence and presence in United Arab Emirates, Oman, Kuwait. ...

The nature of these Islamic beliefs, you're saying, foster fundamentalist extremism?

The teachings are fundamentalist in the definition you have in mind. The question is who's going to cross the line and engage in violent acts or not. So you see, recruitment into terrorist movements is small generally.

There's a big swamp out there of people.

Right, yes. And what we're confronting is not just flushing out Al Qaeda. The bigger headache for the U.S. government is dealing with the Muslim world as a whole, with the political ramifications of our counterattack. That's the bigger problem. ...

So what you're saying, I guess, is that the Saudis have helped create a kind of world of sympathy for both the grievances cited by someone like bin Laden and Al Qaeda, and also for the consequences that may take place because of our reaction to them?

Exactly. In other words, if you promote a fanatical and fundamentalist view of Islam, you're already pretty much determining what kind of reactions people will have to political events, and what kind of views they will have on the west, what kind of views they have on democracy, on capitalism, on social roles and the like. ...

Crown Prince Abdullah, who is currently basically running the country, I understand is not as pro-U.S., or not as focused on the U.S., as his predecessor?

That's correct.

Is that because he's closer to this extremist side or closer to this fundamentalist side?

No, not necessarily. Generally, Abdullah, both in the Arab world in Pakistan and also in Saudi Arabia, has an image much more of an honest politician, of a no-nonsense, good manager. That is what the kingdom needs. People believe he is closer to Muslim causes, be they the Arab-Israeli issue or Muslim causes, and as a result he would have less political pressure on him.

I'm told that because he's closer to Muslim beliefs and less outwardly seen as part of the corrupt pro-American part of the royal family, he's in less danger of being overthrown?

Yes, but you see, the current political set-up in Saudi Arabia does not really allow him to resolve some of the very dangerous contradictions in that regime, because he's neither king nor is he responsible totally for the regime. And because he's not fully king, he cannot begin undertaking some of the reforms, which would take this thing out of the opposition.

Some of the reforms, meaning?

Meaning there are fiscal reforms, there are financial reforms, there are foreign policy reforms, there are ways in which Saudi Arabia has to rethink its regional role with the United States, relationship with the United States. As well as, how is it going to manage its increasingly bankrupt economy? How is it going to reform its domestic economy? How is it going to reform these lavish entitlements it gave to its population which now it wants to take away?

How is it going to go beyond the oil years? How is it going to go beyond the Saudi Arabia that we're so familiar with, with the past 20 years, but which no longer works in the mind of the Saudi opposition? We may believe to think that it doesn't work anymore either. How is he going to therefore do what is needed to prevent this incipient opposition that we are seeing in Saudi Arabia in the form of membership of Saudis in Al Qaeda to become a tidal wave, similar to Iran in 1979?

So it's no good if he's a good man but he doesn't have the power to do good.

And Saudi Arabia is burdened economically, apparently, with these long-term deals it has with various U.S. aircraft manufacturers, defense contractors. This is the result of the policies of the old Bush administration, the old Reagan administration, continuing through the present?

Well, it's also responsibility of Saudi economic planners. I mean, corruption is not the only problem in Saudi Arabia. The other $350 billion which Prince Bandar spoke of was not necessarily wisely spent. There's a lot of infrastructure that was built, but there was a lot of waste. Saudi Arabia tried to grow wheat in the middle of the desert at $10,000 or $20,000 a bushel. There's all these industrial parks that were built that were inefficient. There's nobody to work at them; there are no Saudi who works there.

There's a lot of expenditure that was made that has not led to genuine industrialization. The Saudi economy therefore needs to take structural reforms of the kind we see [International Monetary Fund] prescribing to countries which have a lot less money and therefore have to do it quicker.

So when Prince Bandar says that, "Hey, we spent $400 billion on development in Saudi Arabia, and maybe $50 billion of it was misspent or went to corruption, but look we got it done..."

We got what done? ... A lot of industrial projects, a lot of the kinds of the projects you mentioned with defense contractors, with Bechtel, with Lockheed Martin, with the like, are not necessarily wise projects, are not projects that can actually support themselves. These are money-draining projects that, after you spend billions building them, you have to spend billions more just to keep them in operation. That's what is the drain on the Saudi treasury, its continuous support for projects that were ill conceived, ill implemented and not much to do about it.

If ask former Secretary of State and Secretary of Treasury Baker about this, I'm sure he'll say, "Look. We buy their oil and we just got them to invest in the United States."

That's correct, and that's why the Muslims are so bitter. Because they say we first get the oil money and then the U.S. takes it back with the other hand giving us meaningless industrial complexes which don't accomplish anything. ...

Where I get confused is [that] Osama bin Laden originally said that his big beef was that the regime in Saudi Arabia was corrupt and too closely allied with the United States.

But yet he hasn't been attacking Saudi Arabia, has he?

Not recently.

A person who can run two planes through a building I'm sure would have been capable of a lot more damage in the kingdom had he wanted.

What are you saying?

I'm saying that even Osama bin Laden views the United States as a more important obstacle to changing the regime in Saudi Arabia, number one. Number two is that the connections between Saudi Arabia and the Taliban and the Taliban's clones in Pakistan have helped influence the direction of Al Qaeda's venom, away from the kingdom. ...

Why did the regime put up such resistance to allowing us in to investigate the Khobar barracks bombing or even to let us have indictments in the United States?

Because it may have revealed that than the suspicions that were focused on Iran rather should have been suspicions focused on Al Qaeda. And if the probe focused on Saudi Arabia, it may have showed not only the linkages between various elements in Saudi society and Al Qaeda; it may have also revealed the degree of domestic opposition, the degree of support for bin Laden. It may have shown vulnerabilities in the regime that the regime did not want the United States to see. ...

And the U.S. government, which you have talked to over the years, to our intelligence agencies and others, ignored this?

My feeling is that they were aware of it. In the 1980s and early 1990s, it was fine with them, because it was directed against Iran. Iran was the bigger threat. The assumption was that this hard-line Sunni fundamentalism was the best way of creating the wall around Iran, and limiting its influence in the Muslim world.

It's the strategy that worked. Iran lost its influence in Indonesia, in Malaysia, in Thailand, in the Philippines, in Pakistan, in India, in the Arab world. It largely ideologically became isolated. After Khomeini, Iran no longer had the same kind of sway over the hearts and minds of the Muslims across the Muslim world, at least, in the religious world. So therefore, it was fine by the United States.

Secondly, we were under this assumption that the danger comes from Shiites, that Sunnis are somehow as conservative and fundamentalist as they get, they're not going to be a threat to the West. In other words, the United States and the West fell victim to their own stereotypes.

We spent too much time trying to create a caricature view of the Shiite as sort of genetically coded to be seeking martyrdom, and to be anti-American and revolutionary. And we alternatively develop this view of Sunni fundamentalism, particularly associated with Saudi Arabia, as to be benign.

And thirdly, we thought that the Pakistanis and the Saudis would control this, their little Frankensteins. But we can leave it to them to police these. And it increasingly became evident that neither the Taliban, nor the Pakistanis nor the Saudis have been capable of effectively policing and managing...

OK. In your writings, you list all these fundamentalist groups, extremist groups, particularly in Pakistan, who have come out of these madrassas. So this has been, in a sense, a school for terrorism?

On its extreme fringes, yes. On its extreme fringes, who are these schools producing? People who are well versed in law? Or people who are well versed in carrying bazookas, and engaging guerilla warfare? In a best case-scenario, they've been training very hard-line preachers and religious activists who cannot be absorbed into the regular economy, because they literally have no education other than religion and military warfare.

I'm going to meet with former Secretary of State and Secretary of the Treasury, James Baker, who for instance, was heavily involved in the sale of the F-15, F-16 fighters just before he left office in 1992. He has returned to the region, as a lobbyist, if you will, for various groups, like the Carlyle group. What should we ask him?

Well, we should ask him, where are we going with Saudi Arabia? This is a country that's under tremendous amount of stress. Sept. 11 has exposed contradictions and massive fissures in its relationship with its society that we were unawares about. And now are those exposed. It's not business as usual.

What are we investing in? What are we investing, in terms of our own image, in the region? We're rapidly approaching an era that Jimmy Carter may well have been right, that Iran is the island of stability in the region.

Look around. I mean Pakistan, Afghanistan, Iraq, Saudi Arabia. Do we want to be holding the bag again when there's a massive eruption? Do we have a game plan? Do we have an endgame here? How are we going to help Saudi Arabia with the soft landing? We will no longer work to ignore the problems and the forces and the linkages and the relationships that we're seeing as the trouble that's facing us. ...

Fundamentally, what you're saying is, that the Saudis have been spending money basically fostering this warped view of the world?

They've been spending money on promoting a very conservative and fanatical view of Islam. The consequences may have not been thought of ahead of time. But the result is the increasing entrenchment of rigidity and fanaticism in the Muslim world, which make its entire relationship with all aspects of the West, of modernity, of its political existence, of its economics, all of that difficult. And then when you have crisis like the Arab-Israeli crisis or wars, it plays into that.

And so you're not surprised that it would turn out that 15 of the 19 who committed suicide on Sept. 11 are from Saudi Arabia?

No, I'm not surprised -- not only because of Wahhabism -- but also because of the inherent internal conflicts in Saudi society and politics; because of the very fact that the Saudi regime is facing a crisis which we largely have not been covering. ...

It's created by the fact that the Saudis are not very happy with the performance of their politics, with the government with their society. They don't see themselves where they should be. They're not happy with absence of freedoms, or political expression.

Rising unemployment.

They're not happy with rising unemployment; they're not happy with a shrinking economy in a supposedly very oil rich country. They're not happy with patterns of relationships that manage its economy, all the networks and corruption and who knows whom.

You have to be in business with a member of the royal family to be a success.

Exactly. They're not happy with that. They're not happy with the relationship of the government with the United States, particularly because that has not really produced any influence on American Middle East policy. ... They haven't delivered. In the past several months that the Bush administration has been in, they haven't even been able to bring the Americans back to the negotiating table between the Palestinians and the Israelis. In fact, in some ways, Osama bin Laden is bringing the U.S. back in. ...

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