In the early hours of Jun 25 this year, as Indonesia ushered in the holy Eid Fitr celebrations, two men scaled the fence of a police headquarters in Medan, North Sumatra and shouted “Allahu Akabar” (God is great) before stabbing an officer dead.

The attackers then tried to burn down the regional police headquarters before police opened fire, killing one of the attackers and wounding another.

The surviving attacker, Syawaluddin Pakpahan, 43, was a returnee from Syria who fought with the Free Syrian Army (FSA) for some six months before returning home at the end of 2013, Indonesian police said.

When Pakpahan returned home, he was not detained by the police. Under Indonesia’s anti-terrorism law 15/2003, terror activities committed outside of the country cannot be prosecuted back home.

“Authorities knew Pakpahan is a returnee from Syria. But under the terrorism law, the police have no right to detain him unless he has committed a crime in Indonesia,” a counter-terrorism source told Channel NewsAsia, adding that Pakpahan has since been held following the Medan attack.

The gap in the terrorism law poses problems for Indonesia in its fight against militants and members of the Islamic State (IS), with ramifications for the rest of the region.

Around 400 returnees from Syria, some of whom were involved with IS, are not detained in the world’s largest Muslim country.

“Even if they (returnees) beheaded someone in Syria, under the current law we have no right to detain them unless they committed acts of terror in Indonesia,” Indonesian national police chief spokesman Setyo Wasisto, told Channel NewsAsia.

“The fact that they are free is dangerous as some of the returnees are radical and can brainwash others. They return home, lie low and become sleeping cells. When the moment is right, when they have weapons, they will launch attacks,” said Wasisto.

In Singapore, IS suspects can be held under the Internal Security Act (ISA) which provides for detention without trial for up to two years. In Malaysia, there are 8 returnees from Syria who were held under the Security Offences (Special Measures) Act 2012 (SOSMA), which provides for detention for up to 28 days. All eight have since been brought to trial and jailed, according to police.

Medan attacker Pakpahan was a classic example of a militant who lied low for years.

“He was monitored for three years. During that time, he did not join any militant network. There was nothing suspicious about his behavior. Perhaps that is a skill acquired from Syria,” said the counter-terrorism source.

“He took us by surprise. He was inspired to launch the knife attack following calls from IS to carry out attacks via the internet,” the source added.

“Out of the 400 returnees, police are monitoring around 300 for links to IS,” said police spokesman Martinus Sitompul.

The returnees are also not banned from travelling as they retain the right to hold their passports, worrying regional security officers over the possibility of radicalized individuals travelling to neighbouring countries to launch attacks.

“This is worrying as the returnees could potentially travel to Malaysia, Singapore, southern Philippines, sneak in and launch attacks,” aregional security source told Channel NewsAsia.

“They could also go to Marawi in the southern Philippines and take part in the fight there,” the security source added.

The city of Marawi is under siege by pro-ISIS militant groups which have held off the military for almost three months. The fighting has killed more than 700 people and drawn foreign fighters from Malaysia, Indonesia, Chechnya and Yemen.

Analysts have warned that IS has plans to carve out territory for the group in the southern Philippines as the area is awash with weapons and has many ungoverned spaces.

Indonesia’s terrorism law was hastily drawn up in 2003 in the aftermath of the 2002 Bali bombings which killed 202 people, to give a legal framework for Indonesian police to hunt and prosecute the perpetrators.

The law is seen by some observers to be lacking in preventive measures and inadequate in dealing with evolving terror threats.

While the law makes it illegal for anyone to run a terrorist cell, it falls short of extending punishment to anyone pledging support to or joining groups such as IS.

Revisions to the law are currently being debated in Parliament , a process which has taken more than a year. Lawmakers recently said they expect the debate to be completed by September.

President Joko Widodo has called upon Parliament to speed up the conclusion of the debate following twin suicide bombings in May at the Kampung Melayu bus terminal in Jakarta which killed three police officers and the two attackers.

In the meantime, terror threats have grown and taken on greater urgency as IS loses territories in the Middle East, driving its Asian foreign fighters to return home, radicalized and equipped with para-military training.

Amongst the proposed amendments is the right for authorities to detain and confiscate the passport of citizens who went abroad to join militant groups.

They also face the prospect of a maximum jail sentence of 15 years, if found guilty of taking part in paramilitary training inside and outside of the country, with the aim of planning or carrying out acts of terrorism.

“Syrian returnees who are IS ideologues are the most dangerous as they are very radical. They consider everything at home (in Indonesia) to be infidel - infidel government, fellow Muslims who don’t share their views are also infidels,” said independent terrorism analyst Hasibullah Satrawi.

“The urge to carry out attacks against what they consider to be infidel is very strong. It is part of their breathing,” said Hasibullah.

“It is important for them to undergo the legal process so that if they are jailed, they can receive rehabilitation to undergo a de-radicalisation programme. Having said that, it is very difficult to rehabilitate the ideologues,” said Hasibullah.

IS returnees who subscribe to the terror group’s ideology reject the teachings of Muslim clerics who are not from IS, according to Hasibullah.

Charles Honoris, a legislator from the Indonesia Democratic Party-Struggle (PDIP), said the amendments also seek to criminalise hate speech, which he viewed as a root of terrorism.

“Police will then be able to prosecute hate speech and intolerance which are the roots of terrorism and radicalization as it spreads hatred,” Honoris told Channel NewsAsia.