Joanna Jolly, Ternate – "Before we go to the holy war field, we are trained magically. If our magic is strong and we have a true contact with God, we will not be killed or wounded," says Abubakar Wahid, the leader of Laskar Jihad, touching the row of sword cuts on his arms that, he says, prove that he is invincible.

Abubakar Wahid and his army of white-robed fighters hone their fighting skills by cutting and shooting at each other after drinking holy water. Backed by dissident groups in Jakarta, they are fighting a war to defend the name of Islam but which is tearing apart Indonesia's remote and beautiful Moluccan islands.

For more than 18 months the Moluccas have been wracked by violence that has left more than 3,000 people dead and displaced tens of thousands. Yesterday, up to 600 Christians fleeing the escalating violence perished when their ship sank off the island of Halmahera. Earlier this week, brutal street battles in the southern city of Ambon prompted the Indonesian government to declare a state of civil emergency, amid reports that police and army officers were shooting at each other, rather than attempting to keep the peace.

The vicious conflict, which began over a disputed bus fare in Ambon in January 1999, has pitted the islands' Muslims and Christian communities squarely against each other. Within months, the violence has spread throughout the islands, and has now reached the island of Ternate, the capital of the province of North Maluku, 600km to the north of Ambon. In the southern islands the war is being fought along religious lines, between Muslims and Christians who have lived side-by-side for centuries. But in North Maluku, the conflict appears to be as much about wealth and power as religion.

A collection of volcanic islands, the largest of which is Halmahera, North Maluku became a province in its own right last year. Previously the islands that make up the Moluccas were governed as one region but last July the new boundaries of the province were implemented, causing communities to fragment.

Violence first flared on Halmahera last August, after a redrawing of district boundaries meant the indigenous mixed Muslim and Christian population stood to lose their share of profits from the licensing of an Australian-run gold mine to another group of Muslims who had been forcibly relocated from another part of North Maluku.

It is not clear which community began the fighting, but last September a Christian attack on the Muslim migrants forced them to flee to Ternate. They took their frustration out on the people of Ternate burning churches and homes as they went. But finding themselves under attack, the Christians were forced back to Halmahera, where they, in turn, attacked the Muslims in the Halmahera town of Tobelo.

Muslims in Ternate are keen to show photographs of this attack, which they say claimed up to 800 lives. In these pictures, women and children sheltering in a mosque are shown with their heads and limbs blown off. Now the island's Muslim fighters say they are fighting to avenge every one. Last week they attacked the Christian village of Duma in Halmahera, killing over 100 people.

"I will go back and I will fight again," says Saffri, a Muslim fighter in hospital in Ternate, despite having lost his right hand in a bomb blast. "My command is that the Christians must be driven away from Halmahera," adds Abubakar Wahid, who claims to command 30,000 troops.

And in this war the Muslims have one huge advantage. From their stronghold in Ternate it is obvious to see they have the support of both the provincial government and the military, who also stand to benefit from the new provincial boundaries.

Wounded jihad fighters are treated by military surgeons when they return from fighting, while wounded Christians have to rely on a hospital which until this week did not have a doctor. Despite the authorities' assurances that jihad fighters will be prevented from travelling to Halmahera, boats of fighters regularly cross to the island.

The declaration of a state of emergency in the Moluccas will do little to change the explosive situation in Ternate. Christian leaders have called for international intervention because they do not believe the army is neutral, but jihad fighters say that if the army tries to stop them, they will be forced to fight back. "If the military try to stop us, the jihad troops will fight them. It will become even worse. Let the Christians and the Muslims solve their own problems," says Abubakar Wahid.