The Dutch secret service says combating terrorism also means tackling the problem of thousands of disaffected "born again" Muslims in the West who are open to the appeal of a radical, puritan version of Islam.
The AIVD intelligence service said fighting extremist Islam demanded much more subtlety and concentrating only on Osama bin Laden's al Qaeda network was a mistake as many militants operated outside any formal group structures.
The AIVD, which has previously said it is monitoring about 150 suspected Islamist militants in The Netherlands, said "several thousand" Muslims, mostly youngsters, were vulnerable to the appeal of radical Islam. The Netherlands is home to about 1 million Muslims, or about 6 percent of the population.
"Classical ways of fighting terrorism without consideration for processes of radicalisation and prevention will have little effect in the long-term," the AIVD said in a 60-page report on radical Islam presented to the Dutch parliament.
"Preventing, isolating or containing radicalisation is an important way of fighting terrorism durably."
The AIVD said the murder last month of filmmaker Theo van Gogh, who angered Muslims with his blunt criticism of their religion, should not be seen as an isolated incident.
A 26-year-old Dutch-Moroccan with suspected links to a network of Islamic extremists has been charged with the murder and has been linked to an 18-year-old arrested in June on suspicion of planning attacks on Dutch government buildings.
"Recruitment of Dutch youths with mostly foreign roots for the armed radical Islamic struggle is rather a trend than an incident in The Netherlands," the AIVD said.
The AIVD identified eight different kinds of radical Islam, ranging from non-violent but anti-democratic Muslim preachers to radical Muslim nationalists openly prepared to use violence.
The report said young Muslims in the West were increasingly dealing with a crisis of identity by becoming "born-again" Muslim puritans, who communicate via the Internet and are inspired by independent travelling imams.
"Most of them are not part of a tight, hierarchical organisation. Rather there are diffuse networks with connections based on the same sort of ideological ideas," the AIVD said.
"They want Muslims in the West to turn away from Western values and norms. They preach an extreme aloofness from Western society and often propagate intolerance of other groups."
The AIVD said ways of countering the threat from radical Islam included bolstering moderate Muslim leaders, encouraging the emancipation of Muslim women and more actively prosecuting suspected incitement to violence or discrimination.