Washington --- When President Bush last week identified 27 groups and individuals said to assist terrorists, he included three charities.
None of them is based in the United States, but FBI task forces, grand juries and private researchers have been investigating other charities in this country to see whether money designated for the needy has been going for bombs, weaponry and terrorist training in the Middle East.
"One of the problems has always been finding that smoking gun where moneys are explicitly diverted to terrorism," said Steven Emerson, who runs a private counterterrorist institute in Washington.
In little-noticed testimony a year and a half ago, Emerson warned a Senate committee about increasing terrorist activity in America, some- times in the name of charity. The money trail is difficult to track, Emerson said. Militants are "too smart" to write checks to groups such as Hamas, which trains suicide bombers to attack Israelis, or to the network of Osama bin Laden, the Saudi exile alleged to have planned the Sept. 11 attacks on the United States.
"The money is diverted to another charity or a humanitarian program or to an individual who has no official connection" to any outlaw group before it eventually makes its way to terrorists, Emerson said.
That pattern is the basis for an unusual case in which federal prosecutors in Chicago seized assets of the Quranic Literary Institute, which translatesIslamic works into English from its Oak Lawn, Ill., headquarters.
FBI agent Robert Wright detailed how money from Saudi Arabia and Swiss bank accounts flowed to the Quranic institute and to one of its associates, Mohammad Salah, a naturalized American citizen.
Salah took large sums of money to Israel and delivered it to alleged Hamas representatives, according to Wright. Salah was jailed in Israel for having Hamas ties and later deported to the United States. He lives near Chicago.
The FBI's evidence persuaded a federal district judge to allow the $1.4 million seizure two years ago, but the civil case has been delayed by an investigation on possible criminal charges.
"The government has had an investigation for 10 years now, and they've never had anything more than a jaywalking charge," Salah's attorney, Matthew Piers, said.
Piers said his client denies any ties to Hamas and vows he was bringing aid to destitute Palestinians. Salah, a former Chicago cabdriver, shares his name with one of the persons on Bush's list of terrorists, but his lawyer said they are two different men.
Not long ago, the U.S. Agency for International Development had certified two Islamic charities as qualified to receive federal grants, even though the State Department had put them on a list of suspect groups.
One of the charities, the Islamic American Relief Agency of Columbus, Mo., even won $4.2 million in federal funds for relief work in Kosovo. A few months later, the State Department canceled the grant, saying that working with the agency would be "contrary to the national defense and foreign policy interests of the United States."
Months later, AID certified that an Arab charitable group, the Holy Land Foundation of Richardson, Texas, was eligible for grants. At the same time, the foundation was under suspicion at the State Department, which oversees AID, for having ties to terrorists.
After The New York Times reported the conflicting government positions, embarrassed AID officials last year dropped the Holy Land Foundation from the list of eligible grant recipients.
The Holy Land Foundation has hired Akin Gump, one of the best-known law firms in Washington. Holy Land Foundation "does a great deal of humanitarian work in areas that really need it," attorney Mark MacDougall said. "The organization has never been charged with a crime or designated the target or subject of a criminal investigation."
Court documents and an internal memo from the State Department refer to an "ongoing investigation" involving the Holy Land Foundation. A State Department court filing states that two associates of the charity "are considered to be linked" with Hamas.
Such scrutiny of Arab and Islamic charities has been questioned by some, including John Esposito, a Georgetown University professor of Islamic studies. "We don't treat them like we treat the IRA," he said, referring to tolerance of fund-raising in the United States by the Irish Republican Army.
The probes of Muslim groups are politically motivated, said Ibrahim Hooper, spokesman for the Council on Islamic American Relations, based in Washington.
"The struggle of the pro-Israel lobby to shut down the Holy Land Foundation is longstanding," he said. "If the government thought they were doing something illegal, I'm sure they would shut it down."
Not only is the foundation still operating, but its Internet site urges Muslims to double their charitable donations by asking employers to match their gifts.
The Web site lists Home Depot as a participant, but Suzanne Apple, vice president for community affairs, said the company stopped matching donations two years ago.
With federal probes yet to prove conclusive, the parents of a teenage boy are trying a new method to prove that American charitable funds make their way to terrorists.
Stanley and Joyce Boim, New Yorkers who now live in Israel, are suing six U.S. Islamic charitable groups, including the Holy Land Foundation, as accessories in the death of their son David, who was shot by terrorists on the West Bank in 1996.
The two are alleging that the private groups share responsibility because, they charge, the organizations gave money to Hamas, the group blamed for their son's death. The organizations have denied the allegations.
The novel approach apparently has not been tried before, but it has survived early tests in a federal court in Chicago.