The RUC said a search of the Springtown Road area of the city had uncovered equipment generally used in landmine attacks on police and Army patrols. A hole had been dug at the roadside, while insulating tape, pliers and a command wire which had been painted green were found.
The operation began around 7am on Saturday after people were seen acting suspiciously in the vicinity. Two people are being questioned by detectives.
RUC Inspector Norman Hamill said: "It does have all the hallmarks of a landmine attack. The most likely target would have been a police or Army patrol - that would be the usual pattern for this type of attack in the past."
The incident has cast further doubt on a weekend newspaper report that the IRA had told the British and Irish governments that an unofficial ceasefire was in place to facilitate private contacts between republicans and Dublin.
Before yesterday's announcement SDLP leader John Hume, who has been involved in the channel of communications between the two sides, said he hoped to see another IRA ceasefire but added: "I cannot place it on a higher plane than hope at the present time."
Although Mr Hume, Sinn Fein and the Government had all denied knowledge of an unofficial ceasefire, the fact that the IRA had carried out no major acts of violence for more than a month had led to speculation that a serious negotiation was underway.
Ulster Unionist MP and security spokesman Ken Maginnis said yesterday that the fact that the bomb attack was planned in Mr Hume's Foyle constituency was "a deliberate poke in the eye for him and for what he says he is trying to achieve."
Mr Maginnis added: "I tend, after 25, 26 years of terrorism, to be dismissive of those who are so naive as to believe that the IRA has not got a strategy of violence designed to take them into the next millennium.
"I do not believe that they have the slightest intention of altering that strategy short of total capitulation to them, which is not going to happen. Until in fact we convince ourselves that that is the case, we will not be able to deal effectively with those who would bring death and destruction to Northern Ireland."
The Northern Ireland Secretary, Sir Patrick Mayhew, and the Irish Foreign Minister Dick Spring are to meet in Belfast tomorrow to review the political and security situation.Reuse content