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KUALA LUMPUR, Sunday (Reuters)-On the eve of a summit of leaders of the developing world, Malaysian Prime Minister Mahathir Mohamad said on Sunday the world was in a state of terror, allowing fear of Muslims to affect international policy.

"The world is in a state of terror," Mahathir, chairman and host of the three-yearly summit, told a business forum.

"We are quite paranoid. We are afraid of flying, of going to certain countries, fearful of certain people," he said, adding his concern that any attack on Iraq would serve only to enrage Muslims already under suspicion after the September 11, 2001 attacks on New York and Washington." At their three-yearly ministerial meeting, members of NAM are to issue a declaration that Iraq must comply with U.N. resolutions and challenge Washington with vociferous opposition to any U.S.-led invasion of Iraq.

The issue of weapons of mass destruction in Iraq and North Korea has dominated the run-up to the two-day summit of leaders of NAM, a movement founded during the Cold War as a counterweight to the Eastern and Western blocs.

While delegates agreed after two successive days of late-night wrangling on a draft statement urging North Korea to curb its nuclear ambitions, they fell short of winning Pyongyang's agreement to reconsider its decision last month to pull out of the nuclear Non-Proliferation Treaty (NPT).Mahathir cited U.S. inaction on North Korea as evidence of the polarisation of the world over Iraq.

"The fact that North Korea's open admission that it has weapons of mass destruction has met only with mild admonishment by the West seems to prove that indeed it is a war against Muslims and not against the fear of possession of weapons of mass destruction by the so-called rogue countries," he said.

Delegates at the two-day summit, which opens on Monday, said they saw a chance to avoid war after the chief U.N. weapons inspector, Hans Blix, gave Baghdad until March 1 to start destroying its longer-range missiles, particularly the Samoud-2.

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