Officials now think a terror suspect in custody in Chicago could have prevented a bombing in India that killed 16 people. Philip Shenon on the most important investigation since 9/11.

American officials fear they missed clues in a Chicago terrorism investigation that might have prevented a bombing last month in India that killed 16 people and has threatened to inflame tensions with Indias nuclear-armed neighbor Pakistan.

India has blamed the Feb. 13 bombing in the bustling eastern Indian city of Pune on the Pakistani terrorist network linked to the 49-year-old Pakistani-American from Chicago, David Headley, who has been in custody in the Windy City on terrorism charges since last fall.

The son of an American mother and Pakistani father, Headley is accused of visiting India and Europe to help select targets for the terror network, known as Lashkar-e-Taiba, including targets for the November 2008 siege in Mumbai in which more than 170 people were killed.

Our people did gulp after the bombs went off in Pune, an American diplomatic official told The Daily Beast. The question is whether Headley is really telling us everything he knowsif hes holding something back.

Headley paid mysterious visits to Pune, Indias eighth largest city, in 2008 and again last year.

The bombing in Pune, where several large multinational companies have their offices, was carried out at a Western-style bakery popular with foreign visitors. Of the dead, five were foreigners. (Although Americans were regular customers in the bakery, there were no U.S. victims in the blast.)

American law-enforcement and diplomatic officials say they are now trying to determine if Headley, who had recently been cooperating with the investigation, shared all he knew about plans for an attack on Puneand whether all that information was passed on to Indian authorities.

Headley is supposed to be cooperating with Justice, said an American diplomatic official in Washington, referring to the Justice Department. But our people did gulp after the bombs went off in Pune, he said. The question is whether Headley is really telling us everything he knowsif hes holding something back.

He said that India has a right to ask if Headley knows anything that will prevent other attacks that may now be in the planning.

Officials say that the case against Headley is shaping up to be one of the most important terrorism investigations since the 9/11 attacks, if only because they believe Headley was so central to a terrorist network that was ready to kill Americans abroadand potentially, at home.

It comes at a time when U.S. officials are going public with their concern that American Muslims and others are being recruited into terrorist networks, including al Qaeda.

In a speech Friday in Los Angeles, the United States ambassador to Pakistan, Anne Patterson, outlined a nightmare scenario in which a large number of people with American passports trained abroad as terrorists and then returned home.

They can easily infiltrate back into the United States and, frankly, we don't know what to do about them," she said, according to the Associated Press. "We think there are more out there than we know about."

American officials say it is not fully clear when Headley might have been recruited by Lashkar-e-Taiba. In 2006, he changed his name from Daood Gilani, which American officials say was an effort to avoid scrutiny when he traveled abroad on his American passport.

Lashkar-e-Taiba, which translates as Army of the Righteous, has called for the creation of an Islamic state throughout South Asia. The group is believed to have support among Islamic militants within the Pakistani military.

While it has mostly targeted India in the past, Lashkar-e-Taiba has appeared eager in recent months to attack foreigners, especially Americans and other Westerners, in part in response to American drone attacks on Pakistans border with Afghanistan.

Late last year, several of Lashkar-e-Taibas operatives in Bangladesh were arrested on suspicion that they were plotting to blow up the American and British embassies there. In the Mumbai attacks, six Americans were killed.

In a sign of the importance of the Headley case, the United States Attorney in Chicago, Patrick Fitzgeraldbest known nationally for the so-called Plamegate leak investigation of Bush administration officialshas quietly taken personal control of the investigation.

Headley has pleaded not guilty to terrorism charges, although law-enforcement officials say he is attempting to negotiate a plea agreement that would require him to continue offering detailed information about the workings of Lashkar-e-Taiba.

Headleys lawyer, John T. Theis of Chicago, told The Daily Beast that he could not comment on the status of any negotiation with the Justice Department, other than to say: Nothing is imminent.

He said that Fitzgeralds decision to handle the case personally spoke to the importance of the issues involved in the case. Fitzgeralds spokesman had no comment on the status of the investigation.

The prosecution is complicating relations between the United States and the governments of India and Pakistan, and between those two nuclear-armed South Asian rivals.

The bombing in Pune came only hours before India and Pakistan were to resume high-level negotiations aimed at easing tensions between the two countries.

The Indian government has demanded access to Headley to determine if he has information that could preempt other attacks.

Indian officials also want to understand Headleys past relationship with the United States government and whether he was some sort of double agent who duped American law-enforcement.

American officials have confirmed that Headley became an informant for the Drug Enforcement Administration in the 1990s after his arrest for smuggling heroin from Pakistan.

Pakistan has much to fear from the investigation. Its government is alarmed by allegations, widely reported in the Indian press, that Headley has fingered several senior Pakistani military officials as being tied to Lashkar-e-Taiba.

At the same time, law-enforcement officials say, Headley offers an extraordinary opportunity for the United States, since he appears to have detailed knowledge of the leadership structure of the Pakistani terrorist network and claims to be willing to share it.

When this whole story is told, youll learn that this case has made a very valuable contribution to American national-security police, a law-enforcement officer said cryptically. If this is done right, well going to be saving some lives here.

Philip Shenon, a former investigative reporter at The New York Times, is the author of The Commission: The Uncensored History of the 9/11 Investigation.