April 30 (Bloomberg) -- Al-Qaeda increased its propaganda efforts last year, especially among youth and disgruntled Muslim populations in Europe, in a recruitment push that the U.S. must do more to stop, the State Department said today.

The leaders of the al-Qaeda terrorist network and its affiliates seek to attract people familiar with Western cultures who are able to travel freely, the department said in a report.

``Countering such efforts demands that we treat immigrant and youth populations not as a source of threat to be defended against, but as a target of enemy subversion to be protected and supported,'' the State Department said.

The report said al-Qaeda and its associated networks remained the greatest threat to the U.S. and its allies in 2007. Their propaganda program, which includes extensive use of the Internet, is aimed at enhancing ``the perception of a powerful worldwide movement,'' the U.S. said in the report.

``The international community has yet to muster a coordinated and effectively resourced program to counter extremist propaganda,'' the State Department said.

The assessment was part of the department's ``Country Reports on Terrorism,'' an annual compilation of data on terrorism worldwide required by Congress.

The department said the ``private sector'' could play a role as important as government efforts in trying to hinder recruitment.

`Harness the Power'

``We have yet to fully harness the power of the private sector, which offers enormous potential, such as economic might and fast and flexible responses to market and security conditions,'' the State Department said. ``We need to find better ways to deploy this strength against terrorists.''

On the ground, al-Qaeda, founded by Osama bin Laden, is trying to rebuild itself, the review found.

Al-Qaeda ``has reconstituted some of its pre-9/11 operational capabilities through the exploitation of Pakistan's frontier areas, ``replacement of captured or killed operational lieutenants, and the restoration of some control by its top leadership,'' according to the report.

Pakistan's Prime Minister Yousuf Raza Gillani defended his government's decision to negotiate with tribal insurgents in the border areas, in a commentary published today by the Washington Post.

Persuasion Plan

The aim of any talks will be to persuade tribal leaders to withdraw support for terrorism, Gillani said. The government will seek to overhaul the tribal areas, including those on the border with Afghanistan, economically, politically and socially, he said.

``We intend to restore order and to give the people an option other than collaborating with murderers whose sole goal is chaos and anarchy,'' Gillani wrote.

The number of terrorist attacks worldwide was about 14,000 in 2007, roughly equivalent to the total number of attacks in 2006, while the number of deaths rose by 1,800 or 9 percent, according to the State Department's tally.

Forty-three percent of the total attacks occurred in Iraq, and Iraq fatalities made up 60 percent of the total.

Fighting in Afghanistan intensified during the past year, resulting in 1,127 attacks, a 16 percent increase over the previous year, the State Department said.

Afghan Fight

North Atlantic Treaty Organization and American forces are trying to secure Afghanistan against an insurgency by Islamist guerrillas. The United Nations is attempting to organize economic development work in Afghanistan as another way to bolster the democratic government of President Hamid Karzai.

Elsewhere in Asia, the U.S. is trying to remove a nuclear weapons capability from North Korea, which is on the American list of state terrorism sponsors. The designation limits political and economic relations with North Korea.

Dell Dailey, coordinator of the State Department's counterterrorism office, said part of the delay in removing North Korea from the list is because the regime needs to give the U.S. a ``detailed assurance'' it won't engage in terrorism.

``That assurance hasn't come back from the North Koreans yet,'' Dailey told reporters at the State Department today.

Venezuela, which the U.S. re-certified in May 2007 as ``not fully cooperating'' with antiterrorism efforts, will remain in that category for now, Dailey said.

He said he wouldn't speculate about whether Venezuela under President Hugo Chavez would be added to the state sponsors list.

``It remained unclear to what extent the Venezuelan government provided support to Colombian terrorist organizations,'' the State Department said in the report. ``However, limited amounts of weapons and ammunition, some from official Venezuelan stocks and facilities, have turned up in the hands of Colombian terrorist organizations.''

To contact the reporter on this story: Janine Zacharia in Washington at jzacharia@bloomberg.net

Last Updated: April 30, 2008 19:40 EDT