Worshippers at the Ar-Rahmat mosque in the Indonesian town of Kuta have prayed every night for the past 10 years for the victims of bombs that blew up in their tourist town on Bali island in 2002.

"We will pray for the rest of our lives," said Usman, a Kuta resident, wearing a white gown and skullcap that mark him out as a Muslim on the mostly Hindu Indonesian island.

Usman heard the explosions on October 12, 2002, when two Islamist suicide bombers set off explosives at nightclubs packed with tourists killing 202 people, including 88 Australians and one of Usman's close friends, whose remains were never found.

The blasts, just over a year after the September 11, 2001, attacks on the United States, were a watershed for Indonesia, a secular state with the world's largest population of Muslims the majority of whom are moderate.

The bombs forced Indonesia to confront the presence of a small but dedicated group of followers of Osama bin Laden bent on attacking Western targets.

For Australia, the Bali bombs were the worst peacetime attack on its citizens, many of whom regard a holiday on Bali as a sun-drenched rite of passage.

One effect of the attacks was to strengthen relations between the neighbors who had long eyed each other suspiciously.

Australian Prime Minister Julia Gillard and Indonesian Foreign Minister Marty Natalegawa, along with relatives of some of those killed, attended a ceremony in Bali on Friday to commemorate the 10th anniversary.

"They attacked our people and through them, sought to overwhelm our values. Here on these bustling streets, they inflicted searing pain and grief that will never end," Gillard told the commemoration.

"But even as the debris fell, it was obvious the attack on our sense of ourselves - as Australians, as human beings - had failed," she said.

The attack also scarred Bali, a majority Hindu island until then seen as a tropical paradise of gentle people, temples and rice terraces shimmering on the fertile flanks of volcanoes.

Bali's tourism industry reeled for several years after the bombs but now attracts double the number of visitors it did before. Many Indonesians flock there for Work.

Police officers patrol a street in Legian ahead of the tenth anniversary of the incident in Kuta, Bali October 11, 2012. Photo: Reuters

People stand for a minute of silence during the commemoration service for the 10th anniversary of the Bali bombing in Garuda Wisnu Kencana (GWK) cultural park in Jimbaran, Bali October 12, 2012. Photo: Reuters

Hunt for militants

There was another bomb attack in Bali in 2005 and for the Muslims at Kuta's largest mosque the past decade has meant distrust and what they say is discrimination by Balinese.

"People don't respect us Muslims. When we want to get a license, to do business, it's hard .... It's not like before the bomb," said Obie, a travel agent originally from Sumatra in west Indonesia who has been working in Kuta for more than a decade.

"When you stay here in Bali you pray there won't be another bomb. If there's a third bomb, Bali is finished."

After the 2002 attack, Indonesian security forces worked with Australia and other countries to crack down on the al Qaeda-linked Southeast Asian militant group Jemiah Islamiah that was behind the bombs.

The hunt led to the arrest of hundreds of militants. Some were killed in shootouts and the three main perpetrators of the bombings were convicted and executed by firing squad in 2008.

Yet new militant groups have sprung up and security experts say another attack is always possible.

Bali police issued a warning this week for Friday's memorial. Police say they are watching harbors and have 5,000 village guards patrolling the coast.

Residents of Kuta are jittery.

At the Pura Pakendugan Hindu temple on the beach front, temple organizer I Wayan Suwija, who helped to take people wounded in the 2002 attack to hospital, says the business people coming to make offerings of frangipani flowers and incense at the stone altars also pray for no more bombs.

"Before the bomb we felt comfortable," said worshipper Manolo, as he helped to move bamboo furniture to prepare for an annual ceremony.

"I feel we have clearly lost a sense of safety, of comfort."