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U.S. forces hot on the trail of Osama bin Laden and the leaders of the Taliban in late 2001 didn't worry much about elderly, pious-looking men like Haji Juma Khan. A towering tribesman from the Baluchistan desert near Pakistan, Khan was picked up that December near Kandahar and taken into U.S. custody. Though known to U.S. and Afghan officials as a drug trafficker, he seemed an insignificant catch. "At the time, the Americans were only interested in catching bin Laden and [Taliban leader] Mullah Omar," says a European counterterrorism expert in Kabul. "Juma Khan walked."

That decision has come back to haunt the U.S. and its allies in Afghanistan. Western intelligence agencies believe that Khan has become the kingpin of a heroin-trafficking enterprise that is a principal source of funding for the Taliban and al-Qaeda terrorists. According to a Western antinarcotics official, since slipping out of Afghanistan after U.S. forces released him, Khan has helped al-Qaeda establish a smuggling network that is peddling Afghan heroin to buyers across the Middle East, Asia and Europe, and in turn is using the drug revenues to purchase weapons and explosives. A Western law-enforcement official in Kabul who is tracking Khan says that after a tip-off in May, agents in Pakistan and Afghanistan turned up evidence that Khan is employing a fleet of cargo ships to move Afghan heroin out of the Pakistani port of Karachi. The official says that on return trips from the Middle East, at least three vessels brought back arms, such as plastic explosives and antitank mines, which were secretly unloaded in Karachi and shipped overland to al-Qaeda and Taliban fighters. Khan is now a marked man. "He's obviously very tightly tied to the Taliban," says Robert Charles, U.S. Assistant Secretary of State for International Narcotics and Law Enforcement. Mirwais Yasini, head of the Afghan government's Counter-Narcotics Directorate, says, "There are central linkages among Khan, Mullah Omar and bin Laden."

The emergence of Khan's network reflects the challenges the U.S. still faces in Afghanistan. Since ousting the Taliban in December 2001, the U.S. has struggled to hunt down al-Qaeda's leaders, disarm Afghanistan's warlords and shore up President Hamid Karzai against a revived Taliban-led insurgency. The renewed trade in opium has worsened all those problems. A recent World Bank report calculates that more than half of the country's economy is tied up in drugs. The combined income of farmers and in-country traffickers reached $2.23 billion last year—up from $1.3 billion in 2002. Heroin trafficking has long been the main source of funds for many local warlords' private armies, which continue to thwart Karzai's attempts to expand his authority beyond Kabul. But the drug trade is becoming even more dangerous: U.S. and British counterterrorism experts say al-Qaeda and its Taliban allies are increasingly financing operations with opium sales. Antidrug officials in Afghanistan have no hard figures on how much al-Qaeda and the Taliban are earning from drugs, but conservative estimates run into tens of millions of dollars.

Al-Qaeda's foray into drugs dates from the days when the Taliban ruled the country. Though most devout Muslims consider narcotics taboo, bin Laden never directly condemned drug sales. A Western antinarcotics official says that in early 2001 al-Qaeda's financial experts joined forces with Khan and other alleged top Afghan drug traffickers to persuade Taliban leader Omar to ban opium cultivation. The ban was self-serving: it drove up opium prices from $30 per kilogram to nearly $650. That meant huge profits for the Taliban and their trafficker friends who were sitting on large stockpiles when prices soared.

Neither the Taliban nor al-Qaeda actually grows opium poppy. Their involvement is higher up the drug chain, where profits are fatter and so is their cut of the deal. Yasini, the Afghan antidrug czar, says the terrorists receive a share of profits from heroin sales by supplying gunmen to protect labs and convoys. Recent busts have revealed evidence of al-Qaeda's ties to the trade. On New Year's Eve, a U.S. Navy vessel in the Arabian Sea stopped a small fishing boat that was carrying no fish. After a search, says a Western antinarcotics official, "they found several al-Qaeda guys sitting on a bale of drugs." In January, U.S. and Afghan agents raided a drug runner's house in Kabul and found a dozen or so satellite phones. The phones were passed to the CIA station in Kabul, which found they had been used to call numbers linked to suspected terrorists in Turkey, the Balkans and Western Europe. "It was an incredibly sophisticated network," says the official. In March U.S. troops searching a suspected terrorist hideout in Oruzgan province after a firefight found opium with an estimated street value of $15 million.

Antidrug officials say the only way to cut off al-Qaeda's pipeline is to attack it at the source: by destroying the poppy farms themselves. This year, Afghanistan's opium harvest is expected to exceed 3,600 tons—making it the biggest crop since 1999 and enough to produce street heroin worth $36 billion.

For their part, U.S. military commanders have been reluctant to commit the nearly 20,000 U.S. troops in Afghanistan to opium eradication, fearing that doing so would divert attention from the hunt for terrorists. Afghan officials say that several times last year U.S. special forces spotted suspicious convoys that appeared to be ferrying opium. Radioing in for orders, the special forces were told to leave the convoy alone and keep hunting for al-Qaeda, the Afghan officials say. A senior Afghan security official says the U.S. military doesn't want to jeopardize the help it receives from local commanders by seizing drug stashes or busting labs controlled by friendly warlords.

But the U.S. is finally starting to pay attention. Its ambassador to Afghanistan, Zalmay Khalilzad, has tapped top Drug Enforcement Administration official Harold D. ("Doug") Wankel to lead an intensified drive to nail kingpins, shut down heroin-production labs, eradicate poppy fields and persuade farmers to plant food crops. If the drug cartels aren't stopped, the U.S. fears, they could sow more chaos in Afghanistan, which al-Qaeda and the Taliban could exploit to wrest back power. "We need to make a difference in the next couple of years," says Wankel. Miwa Kato, a Kabul-based officer for the U.N.'s Office on Drugs and Crime, puts it this way: "The opium problem has the capacity to undo everything that's being done here to help the Afghans." Few outcomes would please America's enemies more.

• Tim McGirk | Kabul
• How al-Qaeda is tapping into the opium trade to finance its operations and destabilize Afghanistan