Defence authorities are "sparing no effort" in protecting the country against further missile attacks, First Deputy Premier and Foreign Minister Sheikh Sabah al-Ahmad al-Sabah told the state KUNA news agency, without giving details of the new system.

The low-flying missile struck the country's largest and most popular shopping mall, Souk Sharq, at around 1:45 am (2245 GMT), landing just offshore and causing limited structural damage to the sprawling seaside structure.

The missile also damaged the roof of a nearby mosque, forcing its temporary closure.

The strike was the first to hit Kuwait after a barrage of abortive firings on this tiny emirate since the start of the war on Iraq.

The air raid sirens never sounded but the city was rocked by a massive explosion before flames shot up to the sky and emergency services rushed to the scene.

The attack shocked Kuwaiti residents, who had begun to feel invulnerable after previous Iraqi missile launches either hit remote desert areas or were intercepted by US Patriot missiles out of residential range.

"I think we were lucky that only one out of more than 15 missiles launched at Kuwait made its mark and without any casualties," said Nasser Mohammed, a Kuwaiti citizen.

"It could have been much worse and this is the price that we pay for this war. But the ultimate price is the removal of Saddam Hussein, so it's worth living in such conditions."

But people's faith in the air defence system has been shaken, Nasser said, particularly after so many successful missile interceptions.

Had the Silkworm struck only hours earlier, casualties would almost certainly have been guaranteed. As it was, two people were injured but treated and released immediately.

Defence ministry spokesman Yussif al-Mulla said Baghdad was concealing the launchers for such missile strikes in residential areas of southern Iraq.

British army spokesman Colonel Chris Vernon said coalition forces were "actively searching out" the launchers but played down the effectiveness of the missiles.

"They are so imprecise that they are hardly hitting," he told reporters.

Eyewitness Faisal al-Sallal told AFP after the attack that, "The ground shook like an earthquake. I immediately called 777 for emergency services and a moment later I saw huge flames."

As police cleared the area, a group of young Kuwaiti men started an impromptu singing session, dancing and clapping as they warned defiantly: "Saddam, your days are numbered!"

"We should retaliate. We shouldn't stay neutral in this war. We must retaliate using all means," said Saud al-Hamdan, a 25-year-old Kuwaiti.

Pieces of the missile were strewn everywhere outside the shopping centre, whose glass fascia and main cinema took the bulk of the impact.

The waterfront mall, which boasts a huge marina and more than 100 shops and restaurants, closes at 10:00 pm (1900 GMT) although the cinema remains open well into the early hours of the morning.

The missile also damaged part of the roof of the al-Manaee mosque near the mall, director of the media department at the ministry of endowments, Adnan al-Mudhahka told the official KUNA news agency.

The mosque would be closed until further notice for a damage assessment, he added.

The foreign ministry and the Seif Palace of Emir Sheikh Jaber al-Ahmad al-Sabah, the British embassy and Kuwait's central business district are all nearby.

Only days before Saturday's attack, life had resumed some semblance of normality as residents regained confidence that increasing coalition attacks on Iraqi missile launchers would eliminate strikes on Kuwait.

But the Silkworm attack will force most people to contemplate their every outing and those who had believed things were going back to normal now think the contrary.

"Now a lot of people will prevent their children going to malls, they will carefully choose the places they go," said Mohammed al-Jassim, editor of the mass circulation al-Watan newspaper. "I think the coming days will be a dangerous situation."

Over the past 10 days, some 15 Iraqi missiles have been fired at Kuwait, from where tens of thousands of US and British troops have moved into Iraq.

WAR.WIRE