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New South Wales police have set up a task force to investigate if it is possible to prosecute people who write, publish or sell material that incites terrorism.
The NSW Opposition's spokesman for police, Michael Gallacher, says the Government should taken action under counter-terrorism legislation to remove any material from the community that incites violence.
Another bookstore in Melbourne, run by the country's most fundamentalist cleric, was yesterday selling a book calling for Christians to be trampled underfoot.
"It is either Islam or death," says the book, which is sold from the bookshop attached to the Brunswick prayer room where Sheik Mohammed Omran delivers his fiery sermons.
Attorney-General Philip Ruddock said officers would review the literature sold in Sydney - including one book filled with vitriol against the Australian way of life - to determine if anti-terrorism laws had been breached.
Mr Ruddock said one Australian had already been charged with collecting or making documents likely to facilitate a terrorist act.
The country's highest-profile Islamic leader has called for the deportation of clerics who preach violence, as part of a push to rid Australia of the "disease" of fundamentalism.
Sheik Taj al-Din al-Hilaly compared the spread of Islamic fundamentalism in Australia to AIDS, and said he and other moderate clerics across the country must take firm steps to win the hearts and minds of impressionable young Muslims.
"They are a disease like AIDS and you can't cure them with Panadol," Sheik Hilaly said of radical clerics.
In some of the strongest public comments yet by a senior Islamic figure in Australia, Sheik Hilaly also told The Australian the sale of Islamic literature preaching hatred or violence should be banned.
But the call was flatly rejected yesterday by Australia's most senior fundamentalist Islamic cleric, Sheik Mohammed Omran.
"Australia is a free country and should allow all books to be sold here," Sheik Omran said. He claimed there were no Islamic clerics in Australia guilty of inciting hatred.
I could go to a second hand bookshop, of which there are plenty in Melbourne and buy a copy of mein kampf within half an hour.
An inquiry into whether books sold in an Islamic bookshop in Sydney contravene terrorism laws may prove fruitless because federal and state laws are not strong enough to mount a prosecution.
The Australian Federal Police and their New South Wales counterparts are investigating reports that some bookshops in Sydney are selling material likely to facilitate terrorist acts, an offence under the criminal code.
Federal Attorney-General Philip Ruddock has conceded the laws may have to be changed if the investigation finds the books are not illegal.
Some of the literature discusses suicide bombings, compares westernisation to a malignant growth, describes Australia as a land of discrimination, victimisation, drugs, prostitution and gambling and asks: "For how long will the believing youths be held back and restrained from jihad?"