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In recent weeks, we have seen two Indonesias.

One is the rising economic and diplomatic power poised to join the world's elite emerging economies. The other is a country still unable to manage religious tensions and the rule of law, where sickening sectarian violence and often pointless legal proceedings undermine progress.

On Monday, government figures showed the economy growing in the last quarter of 2010 at 6.9 percent, well above almost all projections. For the year, growth was 6.1 percent, also well above projections. The property sector, retail, banking and commodities are all booming, analysts say. On the diplomatic front, the foreign minister was dispatched to help Thailand and Cambodia patch up their border dispute, a role in keeping with Jakarta's growing international profile as a moderate Muslim-majority country.

Looked at from the perspective of a strong economy and rising diplomatic clout, Indonesia is a success story with good fundamentals, a vibrant domestic market and a solid record for reason and tolerance. Jakarta's business elite is almost giddy over the prospects of going from very rich to super rich while boosters say Indonesia is poised to be the "next" India or China. But in recent weeks, the country has also witnessed the kind of religious mob violence commonly associated with Pakistan or Taliban-controlled areas of Afghanistan. In addition, corrupt and politically motivated courts, seldom a venue for justice, have been wreaking their own kind of mayhem on behalf of the fundamentalist minority.

Consider some recent events. On Sunday, in a tiny West Java village, a premeditated attack by a mob of Muslim zealots burned out a small group of sectarian Ahmadiyah believers sheltering in a house. Police were on hand in the village of Cikeusik, they knew the attack was coming, the tiny handful of Ahmadis in the village had been a target of the radical Islamic Defenders Front (FPI) for at least two years yet nothing was done to prevent the violence. A stomach-churning video of the event shows the mob kicking and beating a lifeless corpse, the dull, wet blows punctuated by cheers from the mob.

Two days later, a similar mob gathered outside a courthouse in the Central Java town of Temanggung chanting "kill! kill!" because they believed a five-year sentence handed down to a man accused of blasphemy for distributing leaflets insulting to Islam was not sufficient. They wanted death for the supposed blasphemer and they proceeded to burn down two churches and rampage through the town as a result.

In a separate incident, on Monday, prosecutors in a suburban Jakarta court recommended a six-month prison term for an FPI leader accused of orchestrating an attack on a protestant church in which two leaders of the congregation were badly injured. They also recommended that the defendant, Murhali Barda, be fined Rp 1,000, just over ten US cents.

Finally, there was the example in late January of rock star Nazril "Ariel" Irham, who was sentenced to three and a half years in prison under the 2008 Anti Pornography Law, a piece of legislation driven by Islamic fundamentalists. His crime was making private sex videos with two celebrity girlfriends that were subsequently stolen from him and posted on the Internet. As the court saw it, he was guilty of "giving other people the opportunity to spread, make and provide pornography."

Behind all of these events, from the spurious headline-grabbing nonsense of Ariel's inquisition to the barbaric beatings of the Ahmadis, is the hand of a minority of Islamic fundamentalists augmented by a failure of political will on the part of President Susilo Bambang Yudhoyono's government. And these are not random acts. The Islamists have steadily used their influence in government to provide a legal foundation for many of these outrages.

Rock star Ariel was prosecuted under a law that has been denounced by civil libertarians and even conservative Christians as a thinly veiled attempt to impose Islamic values on what is constitutionally a secular country. That his was a political show trial worthy of the old Soviet Union is certain. Similarly, the court-inspired riot in Central Java occurred because of a prosecution under an anti-blasphemy law that is blatantly Islamic and pushed by the same fundamentalist minority. The Ahmadiyah pogrom has its roots in a 2008 ministerial decree banning the sect from practicing its religion openly. The decree was supported by Yudhoyono as a "compromise" in the best interests of religious harmony.

While Yudhoyono ritually condemned the religious violence this week, he has yet to call for the repeal of the porn law, or the lifting of the Ahmadiyah decree or the repeal of the blasphemy law. Indeed, his religious affairs minister supports a complete ban on Ahmadiyah, which is reviled by mainstream Islam because it declares its founder, Mirza Ghulam Ahmad, not Mohammed, to be the final prophet of Islam. They number less than 100,000 in the country by most estimates.

Recently, a number of religious leaders have openly taken aim at the president for his failure to act in the face of extremism, but he seems to have been little moved. Gomar Gultom, secretary-general of the mainstream protestant Communion of Churches in Indonesia, said this week, "We are furious with the president's leadership. He keeps making promises but he's all talk and no action."

Jakarta buzzes with speculation about why Yudhoyono caves in to extremism. Some believe it is an electoral calculation that says that the ten percent or so of voters who side with Islamist parties can swing an election. Others note the long-standing relationship between the police and military with extremist groups; they are seen as useful political tools. Others simply believe Yudhoyono, always cautious even when he was an army general, is so risk averse that he cannot see the extremist threat clearly. Still others believe there is a tacit understanding that in exchange for aggressive police action against bomb-wielding terrorists, Yudhoyono's government has gone soft on extremists who stop short of donning suicide vests.

Five or six years ago, in the aftermath of multiple deadly bombings by Jihadists in Indonesia, the threat to the state seemed to come from a widespread network of underground terrorists. That network has largely been rolled up by effective police work, but the result has not been a lower profile for religious extremism or reduced social tension. If anything, Indonesia today seems more bitterly divided along religious lines between moderates of all faiths and fundamentalist Islam than at any time in living memory.

So which Indonesia will prevail? Will it be the modern, business-oriented economy, largely run by non-Muslim ethnic Chinese, or an intolerant, quasi-Islamic state that enforces its will through mob rule and terror? The two seem ultimately incompatible. Investors are likely to sour on a country where the threat of mob violence trumps law.

The way forward would seem to lie, for now, with Yudhoyono, who will rule until 2014. The vision of a modern, prosperous and diverse Indonesia is within reach, but only if the president reaffirms a real commitment to the secular and tolerant state founded in 1945. To do that he must take steps to repeal the overtly Islamic blasphemy law and the thinly veiled Islamic Puritanism of the 2008 pornography statute. He must see that the police finally break their ties with radical Islamic militias and adequately punish groups who pursue vendettas against minorities on the basis of religion. In short, he must govern on behalf of all Indonesians not just the intolerant few.

One hopes he is up to the challenge.

Asia Sentinel