Intelligence and Security Agency director Almir Dzuvo said Jasarevic, of Novi Pazar, entered Bosnia and Herzegovina on Friday morning and committed a terrorist attack, adding that, apart from the gun, he also had two hand grenades which he did not use.

According to him, Jasarevic used to visit the Gornja Maoca village in northern Bosnia where there is a Wahhabi community. A large quantity of weapons and other items were seized in the village last year.

State Prosecutor Dubravko Campara said Jasarevic was convicted in Austria in 2005 to three years' imprisonment for robbery and expelled to Serbia, adding that he would request that Jasarevic be placed in custody as soon he was released from hospital.

Presidency chairman Zeljko Komsic said the authorities would step up protection from such terrorist attacks and work on new legislation to prevent such incidents in the future.

Jasarevic, a militant Islamist from the Sandzak region in Serbia, wounded one police officer and a US Embassy security guard. He was neutralised during a police and special unit operation when a sniper shot him in the leg, after which he was hospitalised.

The embassy is closed and police patrols have been stepped up in the Bosnian capital. According to the media, there were considerably fewer people in the streets last night.

Security Minister Sadik Ahmetovic said Jasarevic was a member of the Wahhabi community in Gornja Maoca which police had broken earlier.

"This attack was an act of terrorism. It can't be justified with anything," he told an extraordinary news conference, adding that the attack had caused "huge damage" to Bosnia and Herzegovina as a state and that everything was being done to arrest those involved.

Ahmetovic said the necessary operations were being carried out in cooperation with the Serbian police and that 18 locations in Serbia had already been searched and 15 people arrested.

He said the Bosnian police would search all locations believed to be linked with the attacker. He would not say if the attack was an isolated incident or part of a wider conspiracy. "We are continuing with the uncompromising fight against all forms of radicalism," he said.

US Ambassador Patrick Moon expressed gratitude to the Bosnian police for the swift response to the attack.

This is a regrettable incident, but we believe the Bosnian police and judiciary will continue to resolutely investigate this case, he said, pledging the US government's full support in the investigation.

He said the US Embassy had received a huge number of support notes and expressions of gratitude for everything the US had done in Bosnia and Herzegovina.

Everyone is assuring us that the attacker certainly doesn't represent them or this country, said Moon.

He said the US would continue to work on the reforms in Bosnia and that nothing could stop that, adding that the US had no indications that such an attack was being prepared.

He also said a special team of FBI investigators would arrive in Sarajevo to establish the damage to the embassy, adding that this was standard procedure in such cases.