The following article discusses the issue of terrorism viewed from the Indonesian foreign policy perspective. The 9/11 tragedy, which highlights terrorism as a new major threat to the international community, has greatly challenged Indonesia in conducting its foreign policy. On one hand, Indonesia's active participation on the U.S.-led "War on Terrorism" is highly demanded. The step needs to be taken by Megawati government as a proof to the international society that Indonesia is never a supporter of terrorists' activities. On the other hand, in executing the foreign policy related to issue of counter-terrorism, the government must act very carefully in order to avoid the pitfalls of negative, domestic sentiments which might endanger the ongoing process of democratization at home and lead to the possibility of becoming a "failed state."