Karzai attempts to pull together threads left from years of misrule

Afghanistan's new leader, Hamid Karzai, said the war was not over in his country yesterday and that American-led coalition troops were still needed to hunt terrorist leaders and bring them to trial.

"They need to fight terrorism right now, physically, inside Afghanistan, to bring them out of their hide-outs and deliver them to justice, to international justice and to Afghan justice," Mr Karzai said.

He also said he thought the former Taliban leader, Mullah Mohammed Omar, was still in Afghanistan, probably in the south-west. Mr Karzai receives reports that he is in the area and has asked his loyalists to arrest him.

Osama bin Laden's whereabouts are considerably less clear. "I don't know where he is," Mr Karzai said. "We receive reports now and then that he may be here or there – but if we get a detailed report we will certainly go after him and arrest him."

Mr Karzai's government is expected to appeal to the United Nations for emergency funds to pay civil servants who have received no money for six months. The new cabinet, which met for the second time yesterday, has inherited a system that was run into the ground by the Taliban, whose appointees still hold positions in several ministries.

Many came from rural Pashtun areas in the south and had no experience of working in government. Their main role was to spy on behalf of the Taliban leader.

One source in the new government said yesterday: "We knew it was going to be a mess but we had no idea of the scale of this mess."

Mullah Omar's financial management skills were poor. He kept vast amounts of cash in trunks. He and a few aides would then distribute it to ministers without any proper system of accounting.

The country is awash with forged currency and Pakistan's Inter-Services Intelligence (ISI) is blamed for producing huge quantities of currency for the Taliban. Vast sums were paid to warlords and commanders as bribes to get them to switch sides. Meanwhile, local currency dealers are now attempting to cash in on the influx of foreigners.

Mr Karzai has appointed the Northern Alliance Uzbek warlord General Abdul Rashid Dostum as deputy defence minister to keep him from expressing outright opposition to the interim government. The general has been critical of the number of government posts his faction was awarded. Although he grudgingly agreed to back the Bonn accord, reports that he is gathering fresh recruits for his army, the most powerful in the Northern Alliance, have caused alarm.

There is also tension between Mr Karzai and the former Afghan president Burhanuddin Rabbani, who has criticised the UN-sponsored agreement as a foreign imposition. Mr Rabbani shows no sign of moving out of the presidential palace, which he now shares with Mr Karzai.

One of Mr Karzai's main problems is that he has no army, which is one reason his faction wants a multinational force in place as soon as possible. Talks continued yesterday between Major-General John McColl, the British head of the projected force, and Younous Qanooni, the Interior Minister. But no agreement has yet been signed.