The home-grown insurgency comes amid a battle between religious conservatives and liberal reformers over the future of the kingdom.
The House of Saud, which derives its legitimacy from an ultra-puritan form of Islam, is anxious not to antagonize the religious body determined to uphold Islamic Sharia law and oppose ideas such as the empowerment of women.
"There are constraints. They have to bring the clerics along and do the reforms gradually. Otherwise, there will be a backlash," one diplomat said.
Besides the crackdown, diplomats say, Riyadh and Washington have set up a joint task force to gather intelligence and tackle the funding of terrorism.
Diplomats say it is not easy to scrutinize the flow of funds in the cash-based society where there is no income tax.
Riyadh has banned all charities from sending money aboard without official approval and instructed banks not to transfer any charity money. It audited more than 200 charities, froze external Saudi ones and closed about 12 of those.
It has also sacked or demoted some 2,000 clerics for preaching intolerant Islam and inciting hatred against the West.
Diplomats and reformists believe the campaign has passed the point of no return because it threatens the Saudi statehood.
"There is a clear recognition that the kingdom is facing by far the worst and most serious crisis in its history and they are very determined to deal with it," one analyst said.
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