Police in Germany stepped up their nationwide search on Wednesday for evidence linked to last week's attacks in the US, as people began asking why the country had been chosen as a base for international terrorism.

Three of the suicide hijackers, including those who piloted two of the planes, had lived in Hamburg and other German cities for several years, according to investigators with the special police operation, code-named Soko USA.

The German cabinet on Wednesday agreed an initial package of counter-terrorism measures that will cost DM3bn ($1.4bn) - including tightened airport security and a clamp down on extremist groups - to be financed by higher taxes on tobacco and insurance. Concerns remain, however, about possible restrictions on civil liberties and whether the measures will be effective against a new generation of terrorists.

"The question is how you can find people who hide perfectly? The strategy of these cells [as existed in Hamburg] is to give no hints of their real aims - to cover their tracks completely," said the office for the protection of the constitution, which monitors for the government the activities of extremist groups in Germany.

There was still shock in Hamburg after people learned that the three hijackers had lived unobtrusively in the city - in one case for at least eight years.

According to Germany's chief prosecutor, for many months the city has been the base for a cell of Islamic extremists involving the three hijackers, an alleged ringleader who may have now fled to Pakistan, and possibly others.

"We are all alarmed and stunned that this happened in our midst," says Hans-Gerhard Husung, president of Hamburg's university of applied sciences, where one of the hijackers studied aircraft engineering.

For German investigators the shock runs deeper, as this is only the most recent case where people with alleged links to the Saudi-born dissident Osama bin Laden have been traced to Germany.

At least six of Mr bin Laden's alleged associates have been captured in Germany since 1998, including a man believed to be his finance chief. The multi-millionaire former businessman still has between 150 and 200 supporters in the country, according to intelligence estimates.

Whether Germany in particular has been chosen as a base for terrorists remains unclear, according to experts.

Staff in Cologne at the office for the protection of the constitution believe terrorists such as those who were in Hamburg could take advantage of the tolerance and openness of any European country. "They see Europe as a stable, safe operational base, where they can slip in, hide, prepare and act," the office says.

The office, which was set up in 1950 to prevent a rebirth of the Nazi movement, describes itself as "the early warning system for German democracy". Yet it failed to detect the Hamburg terrorists because they did not fit with the traditional image of extremists.

The hijackers were not among the estimated 31,000 members of the 17 Islamic extremists groups in Germany monitored by the office, nor did they join any other political parties, the office says.

"It is extremely difficult for the police to deal with these people when they act within the law," Chancellor Gerhard Schroder said this week.

Others believe aspects of German history and society do offer terrorists reasons to settle. Kai Hafez of the German Orient Institute in Hamburg believes "Germany's image in the Arab world is better than other European countries because the country has no colonial or post-colonial history in the region".

Practical factors may also play a part. Easy access to free education, a generous social welfare system and a culture that dislikes infringements on personal privacy may have attracted terrorists, says Mr Hafez.

This may now be changing. Other new security measures being considered include a loosening of data protection laws and the inclusion of fingerprints on identity cards.

Opposition parties have demanded further steps to stop terrorists operating from Germany.

Responding to growing cross-party concerns over the impact for civil liberties, Mr Schroder in parliament: "We will not scrap our basic legal rights to fight terrorism. To do this would be to question the very values attacked by the terrorists".

Additional reporting by Matthias Ruch in Hamburg