For many popular politicians, retiring after two nation-defining decades would be an apt moment for kind words and conciliatory gestures. But Malaysia's outgoing Prime Minister Mahathir Mohamad, who is stepping down this week, has always been a contrarian.

He drew howls of international protest this month when he told an Islamic conference in Malaysia that Jews rule the world by proxy. "They get others to fight and die for them," he said in a speech that won a standing ovation.

Having invoked Jewish domination, Mr. Mahathir then turned the tables on his listeners by asking why 1.3 billion Muslims couldn't do better. The answer: science, education, and social development. "Islam is not just for the 7th century. Islam is for all times. And times have changed," he said.

Malaysia certainly has changed under Mahathir's watch, transformed by 21st- century infrastructure and rapid growth. Yet race and religion remain flash points in a secular nation with a Muslim majority and elite Chinese and Indian minorities. For 22 years, Mahathir has held radical Islam at bay without alienating the Muslim majority to build a prosperous, multiethnic nation. But it's unclear whether his successor, Abdullah Badawi, can do the same.

Mr. Abdullah faces the threat of regional militancy bent on a pan-Islamic state across Southeast Asia, as well as a growing domestic Islamic opposition party that tripled its vote at the last election.

The Pan-Malaysian Islamic Party (PAS) wants an Islamic state in Malaysia with strict laws to punish criminals with public whippings and amputation.

Its popularity among ethnic Malays, who are mostly Muslim, has put the ruling United Malays National Organization party (UMNO) on the defensive.

But many observers reckon that Abdullah, who comes from a line of Islamic scholars, is well positioned to counter the spread of fundamentalism and keep Malaysia on a secular path. He is likely to continue forging a middle way between Islamic demands at home and diplomatic pressures from allies and trading partners abroad.

While PAS is given no chance of winning national office, analysts say Abdullah will seek to win back disgruntled PAS voters with persuasive words, rather than major changes to Mahathir's formula. They say this should be sufficient to contain the threat, at least until Abdullah finds his feet.

"Mahathir tried to overcompensate by being more radical than the Islamic opposition. At the same time, he still wanted Washington to listen to him as the voice of a moderate Muslim nation. He tried to balance both sides," says Steven Gan, editor of Malaysiakini, an online news service that the government has repeatedly tried to shut down.

Under Mahathir, Malaysia struck a chord among developing nations by refusing to let the International Monetary Fund and other agencies dictate its economic path, and criticizing the inequities of globalization. The former country doctor was quick to accuse rich nations of trying to recolonize countries in Asia and Africa, and called financier George Soros a "moron" for short-selling Asian currencies.

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