On October 2, 2005, three bombs again painted the island with blood. The first two ripped apart the Nyoman Cafe and the Menega at Jimbaran beach, a popular resort about 18km south of Kuta. The third exploded in the Raja steakhouse, a busy middle-budget restaurant in Kuta Square. Twenty-four people died in the blasts.

Time has healed most of the island's visible scars. Paddy's Bar has moved to another address on Legian Street and the site it occupied is now a clothing store. The Sari Club never reopened and its old site remains abandoned. A large memorial stone engraved with the names of the 202 victims is a permanent reminder of the atrocity. The Jimbaran beach area has been rebuilt, taking on a more upmarket look.

Mysticism, fatalism and pragmatism are ubiquitous in Bali's daily life, a small Hindu island slotted in the middle of the vast, mostly Muslim Indonesian archipelago.

Some people who work at night where the bombs exploded say ghosts of the deceased are still hovering in an in-between world, full of hatred and confusion.

The living, however, have moved on. But they can hardly hide the scars.

'I remember the people trapped in cars. Some of them were badly injured. I remember the look in their eyes,' Mr Wayan said.

Nyoman Sriani, 36, knew two people working at the Sari Club who died. One of them was her husband's sister.

'My husband went to get her body. He said he could see blackened, burned people everywhere, and he got ash from their bodies under his nails. He recognised his sister by a bracelet she was wearing,' she said.

'My husband couldn't sleep for very long after that. He still does not want to talk about it.'

Luh Santi, 28, was in Denpasar, the island province's capital city, when the 2002 bombing happened. She did not go to work for two weeks afterwards because she was too scared. 'Even now, I sometimes feel tense in Kuta.'

Ketut Arini, 33, moved to Singaraja, in the north of the island, and did not return to the southern shores for two years.

'And then the second bombing happened. I am still scared.'

Despite it all, most Balinese people have taken a standoffish approach in regards to the legal wrangling that have delayed the execution of the bombers convicted of masterminding the 2002 attack. Ali Ghufron, Imam Samudra and Amrozi are being detained at Nusa Kambangan prison island, Central Java.

Noordin Top, a Malaysian extremist believed to be the brains behind the 2005 attack, is still at large.

The three jailed bombers never regretted their acts and have said they are ready to die as martyrs. However, since being sentenced to death in 2003, they have submitted three judicial reviews.

Their lawyer, Mahendradatta, is appealing against their execution by firing squad, claiming it would be a violation of the constitution, which bans torture.

Mr Wayan echoed the other interviewees when he said the decision rested with the government.

'We Balinese try to stay calm. Of course, we are disappointed and want [the bombers] to be executed soon. But what can we do as common people? We trust the matter to the government.'

Meanwhile, Ms Santi raised concerns about the way the government was fighting the terrorist threat.

'I do not see enough being done. I am not sure what they have done to lessen the danger,' she said.

In fairness, while October brings memories of the tragedies, this is also the third consecutive year that there has been no major terrorist incident in Indonesia, something that has been attributed to efficient preventive measures. With the help of Australia and the US, the police anti-terror unit, Detachment 88, has arrested or killed a string of terrorists, while the Attorney General's Taskforce on Terrorism and Transnational Crime - also US-funded - has been effective in handling prosecutions.

Meanwhile, the courts have taken a hard line. In the past five years, about 400 suspects have been captured and many of them sentenced, with punishments including the death penalty, life imprisonment, and years in jail. JI cells in Java, Central Sulawesi and Sumatra have been weakened.

Moreover, the government has made efforts to develop an effective anti-graft system for investigations and prosecutions, while also conducting a de-radicalisation programme. This is aimed at converting extremists into moderate Muslims who would also preach moderation to their colleagues.

The programme is credited with having contributed to the split now evident within JI, where the majority now seem to be against bombings in favour of proselytising to advance their goal of an Islamic pan-Asian state.

In Bali, intelligence work has improved. More checks are in place - especially at Gilimanuk port, Ubung bus terminal, Ngurah Rai International Airport and Padangbai port - and more security guards have been employed across the island.

But experts admit the island cannot be defended against attacks on soft targets such as restaurants.

Made Mangku Pastika, the newly elected governor and the island's former police chief, said Bali had failed to introduce enough security to prevent more terrorist attacks and remained the region's prime target.

'The terrorists still consider Bali the best place to do their activities and send a message to the world,' he recently told Melbourne's The Age newspaper.

He argued that Bali needed a comprehensive, international-standard security system, including closed-circuit television cameras in tourist precincts and tighter security for hotels and attractions. He also called for improvements in surveillance and security at Bali's international airport and ports, and he proposed specialist counterterrorism training for police.

'All major hotels should also co-ordinate their security precautions,' said the former policeman, credited with arresting the three Bali bombers.

Mr Wayan said security was important because Bali could not afford another tragedy. 'Besides the loss of lives and the pain, another bombing would be lethal for the local economy. It has only recently recovered from the previous two attacks.'

Official data shows tourism accounts for 6 per cent of Indonesia's economy, while it employs 8 per cent of the total workforce. But most of the activity is concentrated on Bali and the nearby island of Lombok, where 65 per cent of the workforce is, in one way or another, dependent on tourism.

After the 2002 bombings, arrivals at Bali's international airport dropped from an average of 5,000 a day to fewer than 1,000. Hotels and restaurants were nearly empty, and taxi drivers and street hawkers competed hard for the remaining business.

A survey conducted on the island by the United Nations Development Programme and the World Bank in early 2003 showed a 25 per cent decline in household incomes.

Then, after some time, as things were starting to return to normal, the second attack hit.

'Bali was really dead after that,' Ms Nyoman said.

In 2006, foreign-tourist arrivals to Bali fell by 8.7 per cent to 1.33 million from a year earlier, data from the Central Statistics Agency showed.

But the magic appeal of the island of temples, rice paddies and tropical beaches proved too strong and numbers improved soon afterwards. A year later, foreign-tourist arrivals in Indonesia rose by 13 per cent, reaching 5.51 million, compared with the 4.87 million of 2006. This influx was spearheaded by a massive 31.1 per cent rise in arrivals to Bali.

Now, Bali's authorities are convinced the island will see more than 2 million foreign tourists before the end of this year. From January to July, 1.11 million tourists visited the island, an increase of 21.64 per cent over the 912,270 tourists during the same period last year.

The streets are busy. The economy is bubbling again, and Bali's future looks brighter. But the island's fragility is worrying, and whispers on the street say executing the bombers could create problems.

Bali police chief spokesman Senior Commander A.S. Reniban said security measures had been increased to prevent any revenge attacks and, from his prison cell in Central Java while celebrating the end of Ramadan, Amrozi said: 'If I am executed, there will be retribution later.'

He added: 'It is not necessary for me to tell you what the retribution will be.' He then flashed his usual grin, which has earned him the nickname 'the smiling terrorist'.

The message sent shivers down the backs of many Balinese.