IT'S BUSINESS as usual for Cosa Nostra LLC, but there could be a bloody mafia war looming just around the corner. Despite the arrest of its top bosses, uncertainty about its future leadership and the seizure of many of its assets, the Sicilian Mafia - the best-known and once the most powerful of Italy's organised crime outfits - continues to operate as a limited liability company. That's because the authorities responsible for calling it to account for its illegal actions are frequently distracted, when not actually infiltrated by emissaries of the Mob.

A report published last week said organised crime had become Italy's biggest industry, surpassing for the first time the earnings of the oil giant ENI. The retailers' association Confesercenti said the combined revenues of all the Italian mafias amounted to a staggering 90 billion (£63 billion), or 7% of the country's gross domestic product.

Now a new generation of young and dynamic Cosa Nostra bosses are seeking to revive the organisation's international contacts and its pre-eminence in the drug trade, while strengthening its hold on the legal economy at the same time. Their jostling for power could soon result in bloodshed, Italian investigators warned last week.

In the absence of major criminal atrocities, the political establishment is all too ready to forget the Mafia and the economic troubles of southern Italy on which it thrives.

In a country governed by leaders of retirement age - Prime Minister Romano Prodi is 68, his rival Silvio Berlusconi, 71 - and which has great difficulty renewing its leadership, the Mafia is a model of streamlined management efficiency. No sooner is one boss arrested - or killed - than another steps into his shoes.

The arrest in 1993 of Salvatore "Toto" Riina, the boss of bosses known as "the Beast", ended a period of open and violent challenges to the state. The killing of top anti-Mafia magistrates and terrorist bombings on the mainland drew a stern response from the government, which sent troops to keep order in Sicily.

His successor, Bernardo "the Tractor" Provenzano, chose a softer approach, concentrating on business interests and cultivating political contacts - seeking to "submerge" the organisation so that it would slip from the sight and mind of the political establishment in Rome.

That policy has not changed since Provenzano's arrest in a farmhouse near his home town of Corleone a year and a half ago and no single boss has emerged to take on his mantle as "capo di tutti i capi". But that could be about to change.

Palermo boss Salvatore Lo Piccolo, a 64-year-old veteran who has been on the run for 24 years, is gunning for supremacy in the organisation and using his close relations with Cosa Nostra's American cousins to bolster his claim. Lo Piccolo has put himself forward as guarantor of the drug trade between Sicily and the five Mafia families of the United States, according to a report presented to parliament last week by police investigators.

Lo Piccolo's strategy has not been universally welcomed within the Cosa Nostra and could lead to the collapse of a long-running pax mafiosa, the investigators warned.

The Palermo boss also sponsored the return from the US of members of the defeated Mafia families who fled Sicily in the 1980s to escape a bloody Mafia war.

That decision has already caused tension and threatens to upset the delicate balance of power within the Cosa Nostra. On June 13, influential Palermo boss Nicola Ingarao was shot dead in the street outside a police station where he had been to sign a suspects' register. Investigators believe his murder was connected to the dispute over the return of the refugee families.

Lo Piccolo is understood to treat himself well. Documents found in Palermo during the summer showed Lo Piccolo was paying himself a salary of 40,000 a month, almost double what his predecessor, the ascetic Provenzano, took.

Lo Piccolo's son Sandro, who assisted him in the governance of "family" affairs, was being paid 25,000 a month, while the clan's footsoldiers took home a modest 1000.

There is no shortage of cash in the organisation. The Confesercenti report estimated that organised crime groups take in 30 billion a year from the protection racket alone, a phenomenon that affects 160,000 businesses or 20% of all shops in Italy.

The extortion plague is particularly prevalent in the south. In the Sicilian towns of Palermo and Catania 80% of shops pay protection money. The figure slips to 70% across the water in Reggio Calabria and to 50% in Naples, although in some of the rundown suburbs of that city absolutely everyone pays.

Shopkeepers in Palermo and Naples can expect to pay up to 1000 per month for "protection", while supermarket managers shell out somewhat more: up to 5000 in Palermo and 3000 in Naples.

The widespread extortion has an important psychological value, emphasising to the public that it is the criminal gangs, rather than the police, who control the territory. Local newspapers are full of minor bomb explosions, arson attacks and other acts of vandalism, which serve to cow the population while rarely making it into the national press.

"We could be one of Europe's most modern countries, with first-rate social services and infrastructure and a respectable employment rate, if we didn't have 90 billion expropriated from us by the Mafia every year," said Leoluca Orlando, a former mayor of Palermo and spokesman for the anti-crime Italy Of Values Party.

There have been timid signs of progress though in the battle against the extortionists. At the beginning of September the Sicilian employers' association, Confindustria, announced that any industrialist who agreed to pay protection money - known as pizzo - would be barred from membership.

The unprecedented campaign was spearheaded by Andrea Vecchio, a 67-year-old builder from Catania, who publicly refused to bow to the racketeers despite four acts of sabotage against his equipment in as many days.

Significantly, the revolt against the extortionists has been supported by youth groups throughout southern Italy.

"We have never seen anything like the employers' initiative before," said Dino Paternostro, a journalist and anti-Mafia campaigner who lives in Corleone. "It probably reflects the fact that the level of vexation was becoming unbearable. If the state was a bit better organised the Mafia might well find itself in difficulty."

One Mafia that does not appear to be in difficulty is Calabria's 'Ndrangheta, the most secretive, ferocious and profitable of the country's criminal gangs. This despite the massacre in the German town of Duisburg last August of six Calabrian men, a spectacular crime that attracted the attention of media and law enforcement from across the continent and has so far resulted in more than 30 arrests.

The youngest victim of the killing - part of a primitive blood feud that has been running for the past 16 years - was aged only 16. Investigators said he had just been enrolled in the organisation at an initiation ceremony held in a Duisburg pizza restaurant. A partially burned image of the Archangel Michael, used in the pseudo-religious rite, was found in the victim's pocket.

Most active members of the group are aged between 20 and 30 and their criminal power, based on domination of the lucrative European cocaine trade, spans the globe.

The group's prestige is such that Colombian cocaine cartels will do business on the basis of an 'Ndranghetista's word. With other business partners they prefer to take a hostage as surety for payment. A Sicilian mafia family recently had to turn to the 'Ndrangheta to negotiate the release of one of its members detained by a Colombian cartel.

"To say the situation is under control is a historic falsehood, it's doing a favour to the Mafia," said Nicola Gratteri, a leading anti-Mafia prosecutor from Reggio Calabria.

One characteristic of the organisation was its impenetrability, Gratteri said. At a time when the Cosa Nostra had been betrayed by 1000 of its members and the Neapolitan Camorra had produced 2000 supergrasses, only 44 low-ranking 'Ndrangheta members had dared to turn state's evidence.

Part of the secret was the fierce loyalty that the organisation inspired through a complex system of folklore and initiation rites.

"The first-born male child of an 'Ndranghetista must join the organisation. The child will be visited by the local boss, who cuts his fingernails: that's the first initiation rite," Gratteri told foreign reporters in Rome. "The 'Ndrangheta is more important to its members than their blood family. It confers social importance, respect."

Police forces worldwide have been slow to wake up to the threat posed by the 'Ndrangheta, he said.

"Italy is perhaps the only country in the world that has four mafias, but we are also the country that is judicially best prepared to tackle them," he said. In the Netherlands, for example, police are not allowed to delay the arrest of a suspect for investigative purposes, while in Germany they are forbidden from bugging public spaces.

Italian magistrates are tired of international conferences that discuss the challenge but produce no concrete results. "We are talking about the security and democracy of Europe," Gratteri warned. "We are talking about the freedom of the markets. Cocaine profits give the 'Ndrangheta an unfair advantage in its other businesses. The new money will enable its members to buy parts of the media and votes in parliament. The Mafia votes and makes people vote."

Another factor in the 'Ndrangheta's growth was a decision in the mid 1970s to allow its members to join masonic lodges, giving them convenient access to civil servants, doctors, lawyers and other professionals who could be useful to the organisation's business needs.

Contact with politicians has been the key to success for all of Italy's mafia organisations, including the loosely knit Neapolitan Camorra, currently engaged on a bloody turf war that has cost more than 90 lives since the beginning of the year, and the lesser-known Sacra Corona Unita (Sacred United Crown) from the southeastern region of Puglia.

In Palermo the president of the Sicilian regional government, Salvatore Cuffaro, and two police officers are on trial for allegedly leaking information about police investigations to the Cosa Nostra. And in the Calabrian town of Catanzaro an investigation into the misuse of European Union funds turned into a national scandal last week when the prosecutor leading the probe was summarily removed after turning his sights on the prime minister and the justice minister, Clemente Mastella.

Both cases have an important symbolic value and have undermined public confidence in Italy's political institutions. But they have also galvanised public opinion, with public rallies in support of the Catanzaro prosecutor, Luigi De Magistris, who had dared to scrutinise the conduct of even the most powerful in the land.

Anti-Mafia campaigner Dino Paternostro is determinedly optimistic: "There's light and shadow, but it seems there's a little more light than there was before."