Twenty-six other countries have sent observers.

Nelson said the threat from terrorist groups, likely to be watching the exercise, was genuine.

"Would you really have more than 30 countries sending their highest-level civilian enforcement agencies to Australia for an exercise like this, if it were not a real threat?" he said.

"The reality is that there are people throughout the world who are committed to inflicting as much harm on innocent people as they possibly can.

"Weapons of mass destruction -- biological, nuclear, chemical and radiological -- are very effective ways of doing that."

The exercise is the sixth to take place as part of the Proliferation Security Initiative (PSI) launched by US President George W. Bush in 2003.

The initiative is supported by more than 60 nations and designed to combat the illicit trafficking of weapons of mass destruction and related materials.

Australia's northern neighbour Indonesia, which has never supported the initiative, is not participating.

Nelson said Australia respected Jakarta's decision and remained optimistic their "close cooperative relationship" would soon be restored despite an ongoing row involving asylum seekers from Indonesia's Papua province.

Australia angered Indonesia last month when it granted temporary visas to 42 boat people from the independence-minded province.

"Australia would be quite interested in conducting joint and coordinated naval patrols with the Indonesian navy," Nelson said.

"It's in the interest of Indonesians, and in the interests of Australia and our region, that Australia and Indonesia cooperate with one another in every way that we possibly can."

The PSI commits countries to disrupt trade in weapons of mass destruction (WMD) by interdicting vessels, aircraft or other modes of transport that are reasonably suspected of carrying suspicious cargo.

According to the Australian Defence Department, WMD-releated shipments have been intercepted a number of times, but many of these interdictions are not publicised because they involve sensitive intelligence and diplomatic issues.

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