Qantas announced in Sydney this week it intends to shed 1000 jobs in addition to the 1500 already lost as the national airline battened down its hatches ahead of war in Iraq. At sea, the Australian Wheat Board turned two grain-laden ships away from the Gulf, contemplating with concern the immediate future of one of its largest markets and the longer-term prospects of American competition in a post-war Baghdad sponsored by Washington.

Violent warnings from Muslim militants undermined the assurances of President Megawati Sukarnoputri that Indonesia understood Australia's decision to go to war against Saddam Hussein was not an attack on Islam.

Across Australia, tens of thousands of demonstrators poured into the streets to vent their fury that bombs had fallen on Baghdad and Australian forces were involved.

"For the first time in the history of this country, Australia has joined as an aggressor in war," said Labor Leader Simon Crean.

With his commitment to the Coalition of the Willing, John Howard has taken his nation into a frightening new world, waging war against the wishes of the majority of his people in support of an American President who has riven the certainties of the past.

Howard's future is on the line. The course of events in the Gulf will determine whether he has any options left to consider when he takes his promised decision on continued leadership of the Liberal Party in July.

Whether he stays or goes, voluntarily or under compulsion, John Winston Howard will leave Australia the legacy of an alignment with the new world of President George W. Bush far closer and potentially far more binding than anything of the past.

Canberra's new commitment extends well beyond Harold Holt's 1966 Vietnam pledge to President Lyndon Johnson of "all the way with LBJ". It embraces a new, broad span of diplomatic, economic and military engagement.

Support for the US alliance has been an accepted policy of both major parties since John Curtin's abandonment of British primacy in 1941. Howard has taken it another large leap forward.

In his address to the nation on Thursday night, Howard suggested the first priority in Iraq was the removal of the weapons of mass destruction he believes threaten the world through their example to other rogue states and their potential release to terrorist organisations.

But his second priority was the alliance with the US. "The Americans have helped us in the past and the US is very important to Australia's long-term security," he said.

"It is critical that we maintain the involvement of the US in our own region, where at present there are real concerns about the dangerous behaviour of North Korea.

"The relationship between our two countries will grow more - rather than less - important as the years go by."

In the same week that Howard was preparing the final details of his commitment to the Coalition of the Willing, a team of US negotiators arrived in Canberra to negotiate a free trade agreement. The overlap between the two events is not coincidental.

Canberra has used its alliance and support for US strategic initiatives as a bargaining chip in efforts to achieve an agreement that Washington was until recently dragging its feet on. The US regards it as a potential payback for support in Iraq and what will be a continuing war on terrorism. Both sides have recognised the entwining of economic and strategic goals.

Australian Foreign Minister Alexander Downer: "A free trade agreement would help to engender a broader appreciation - in both countries - of the bilateral security alliance and the manner in which ANZUS, together with the network of US alliances in the region, helps to underpin the stability and prosperity of East Asia and the Pacific."

US Trade Representative Robert Zoellick: "In addition to supplementing our partnership with Australia on global and Asia-Pacific trade issues, a free trade agreement would also further deepen the ties between our societies and strengthen the foundation of our security alliance."

This is why Canberra is dismissing warnings that Australia may actually lose from the kind of deal that now seems to be in the making, and appears prepared to trade away some of what were previously rock-solid baselines.

Trade Minister Mark Vaile has conceded that unimpeded trade in agriculture is unlikely and that Canberra is probably prepared to accept improved - rather than unfettered - access for such key exports as beef, sugar and dairy.

Elsewhere, Australia has joined the US in dumping the Kyoto Protocols on climate change, breaking away with a separate understanding on greenhouse gas emissions and measures less harmful to their carbon-based industries.

In military terms, the alliance has grown increasing closer. Australia was America's sole supporter for US naval intervention during the 1998 missile crisis between China and Taiwan. Military exercising and co-operation between the two has significantly increased, and now - despite fury from China and fears of an arms race - Canberra intends joining the "Star Wars" missile defence programme.

The cost of this is high in terms of cost and dependency. New US technology, including the hugely expensive Joint Strike Fighter (JSF) aircraft and three highly sophisticated air defence destroyers, will cost billions and bond Australia even more closely to America.

Australia is already an integral part of US global strategy through the Pine Gap satellite listening station near Alice Springs, a Cold War-era installation that has gained new significance through the Gulf War, terrorism and the fraught development of the missile shield.

Since the 1991 war, Pine Gap has been expanded significantly. It has doubled its number of ground radars to 26, increased its staff and extended its role beyond collecting raw data to processing and analysis.

This has immediate application for the present war. Since last year, Pine Gap has placed increasing priority on Iraq, enabling it to locate, identify and target enemy missiles and installations for commanders in the field.

Australia makes a sound case for the strength of its alliance with the US and the costs that may be imposed.

America is the world's only superpower with economic, technological and military might that will be unchallenged for decades, the only possible arbiter and peacemaker in an unstable region.

Australian strategists argue this holds true in the war against terrorism that has come to dominate the security agenda and which poses a far greater threat than the remote chance of direct military attack on the continent.

"A key element of our close relationship with the US and indeed with the British is our full and intimate sharing of intelligence material," Howard said in his address to the nation.

"In the difficult fight against the new menace of international terrorism there is nothing more crucial than timely and accurate intelligence. This is a priceless component of our relationship with two very close allies.

"There is nothing comparable to be found in any other relationship - nothing more relevant indeed to the challenges of the contemporary world."

But the relationship risks imposing America's will on Australian policy. Since September 11, the US has accepted the principle of pre-emptive strike against enemies wherever they are, with an absolute faith in American purpose, might and values.

This has been underlined by Iraq, with a further disturbing implication: the primacy of the Anglophone world, the old English-speaking club of Britain, the US, Australia and, in a more tarnished back room, Canada and New Zealand.

The United Nations has been seriously compromised, the Atlantic Alliance shaken, Nato's future clouded, Europe is divided, and much of the rest of the world has looked on in horror.

The divisions within Europe have been highlighted by the bitter exchanges between Britain and France and at this week's summit of European Union leaders.

Anger also flows both ways across the Atlantic, with warnings that relations between the EU and the US are in crisis and are threatening the creation of two opposed, competing blocs.

Similar anger has been expressed by Russia and China - which believes the US is trying to create a unipolar world through Iraq - and underscored by opposition from Australia's close Asian neighbours.

In all this, Canberra is now seated firmly at Washington's table. The consequences could be heavy. Trade analysts warn that the chances of significant gains from the World Trade Organisation's Doha round of free trade talks have dimmed greatly, especially in agriculture.

In the future, Australia seems likely to be drawn into new conflict through its commitment to the US and the war on terror, which Washington has made clear will be long, hard and painful: last week the US reimposed sanctions on Iran, cementing its place in the "axis of evil".

Already a target for international terrorists, Australians have been warned by extremists to stay out of Indonesia.

Warned Australian Strategic Policy Institute director Hugh White: "Our management of the relationship with Indonesia will be complicated by the position of the US, which still pays little attention to our concerns and is becoming more dependent."

Malaysian criticism of Canberra, previously excluding Australia from Southeast Asian forums and economic groupings, has grown with the Iraq crisis and embraces Kuala Lumpur's concerns: state-owned oil giant Petronas fears for deals made with Saddam once his regime falls.

Australia has more immediate concerns. Its economy slowed to 3 per cent growth in December and is showing signs of softening even further, especially if European fears of recession are realised and the US economy stumbles.

The nation's A$32-billion-a-year tourism industry is expected to be hit by a war-inspired, short-term fall of 10-20 per cent in foreign visitors. It is already reeling from a 20 per cent slump in bookings for the first six months of the year.

Elsewhere, an Australian Industry Group survey has predicted losses of up to A$1 billion for manufacturers, with a forecast industry-wide fall in turnover of up to 20 per cent.

The May budget will be tough. Although the full cost of the war has not yet been calculated, Treasurer Peter Costello has warned that it will run into hundreds of millions of dollars, hitting budgets for other key areas such as health, education and social welfare. "The war is hanging like a dark cloud over everyone," one senior bureaucrat said. "If you don't drive a tank, you aren't going to get anything."

And at the personal level, Howard has his future to consider. If the war is short, sharp, relatively light in casualties, dumps Saddam, uncovers weapons of mass destruction and Iraq welcomes Australians as liberators, he can forget any talk of retirement or a challenge from Costello.

If the war is bloody, protracted, leaves a sullen population with huge costs and commitments to reconstruction, and plunges Australia into recession, it will be goodbye Johnnie.

For everyone, war is a high-stakes game.