Thai police said they had arrested one of their nationals Friday with a large quantity of caesium-137, a radioactive isotope of the highly reactive element that could be used in a dirty bomb.
Narong Penanam, 47, was detained in a sting operation in a Bangkok hotel car park when officers posed as buyers.
They were acting on a tip-off from American customs authorities, some of whose agents were present during the operation.
Detectives said Narong confessed he had smuggled the radioactive material, which is most commonly used for tracing upland soil erosion and downstream sedimentation, into Thailand from neighboring Laos.
They said the suspect wanted 10 million baht (US$240,326) for the material -- said to weigh 30kg -- which he said was uranium and was in a tightly sealed metal case.
This confirmed the fears of the American agents, who had warned the Thais that uranium would soon be sold in Thailand, possibly for use in an attack on the US.
But experts from the Office of the Atomic Energy for Peace later declared the metal was caesium and not uranium, the former being much less radioactive but still extremely dangerous. It has a half-life of 30 years.
"It could be deadly if it got into the hands of terrorists. We have heard reports that terrorists were planning attacks on embassies in Thailand," said the deputy national police chief Sombat Amornvivat.
An officer involved in the operation said, "The caesium is normally used in industrial work, but could be used in a dirty bomb."
Dirty bombs contain mainly standard explosives mixed with some radioactive material. When they explode they contaminate a wide area.
They are much easier and cheaper to assemble than nuclear bombs.
After the initial interrogation an American customs official said he no longer believed America was the target.
"This person wanted to sell the substance to terrorists for sabotage in Thailand," he said, but did not rule out an attack on American interests in Thailand.
Three alleged members of the south-east Asian terrorist network Jemaah Islamiyah, including a senior member of the Singapore branch, have been arrested in Thailand in the last few weeks.
They have allegedly confessed they were planning to detonate bombs at various targets in the capital, particularly western embassies, including Britain's. Prior to their arrests the Thai prime minister, Thaksin Shinawatra, had claimed his country was terrorist-free even though Jemaah Islamiyah cells existed in Malaysia, the Philippines, Singapore and Indonesia.
Thai police colonel Chatchai Liamsanguan said American customs officials had asked the Thai police to investigate the possibility of uranium being traded in Thailand. "They were afraid that uranium, which could be used in making nuclear bombs, would be sold to terrorist groups in Iraq or North Korea," he said.
There are some doubts about the facts of the incident. It is not clear if the 30kg includes the case as well as the caesium, which usually would start reacting as soon as it comes into contact with moisture.
Some analysts are also pointing out the coincidence that Thailand's impressive successes against terrorism are coming just as Thaksin is visiting the US.
The two Thai alleged members of Jemaah Islamiyah were arrested hours before he met President George Bush.
If convicted, Narong faces a year in prison and a 10,000 baht(US$240.32) fine.