Another terrorist attack in Russia. Last Friday, Islamist insurgents murdered at least five people in the North Caucasus region of Kabardino-Balkaria. The masked gunmen ambushed a minibus carrying Moscow tourists to a ski resort at Mt. Elbrus, one of the country’s top ski destinations. The victims included three tourists and a local government official.

In addition to the shooting, the terrorists blew up a ski lift at the resort, bringing down 40 gondolas. Luckily, the lift was empty and no one was hurt. Police also discovered three big bombs packed in a car at a nearby hotel parking lot, weighing in at over 150 lb of TNT. The escalating violence has stoked fears among Kremlin officials that the Sochi resort, host to the 2014 Winter Olympics, may be targeted.

This most recent attack marks a change in strategy for the militants. Past violence in the North Caucasus has been directed primarily at security services and law enforcement. Friday’s onslaught targeted peaceful civilians. According to Kommersant newspaper, local Islamist insurgents vowed earlier this month to retaliate against the Kremlin’s counterinsurgency efforts. Moscow has launched a number of economic initiatives to promote tourism and investment in the region’s ski industry. It seems the extremists are keeping true to their word.

The Russian counter-terrorism strategy in the North Caucasus is facing a no-win situation: a muscular anti-terrorist crackdown causes a backlash, while economic development is frought with its own pitfalls, including corruption and deadly terrorist reprisals.

Coincidentally, the terrorist attack on civilians occurred on the same day President Dmitry Medvedev and Prime Minister Vladimir Putin were skiing at the North Caucasus’ resort of Krasnaya Polyana located in Sochi. President Medvedev was there to chair a meeting of Russia’s Security Council to discuss safety issues surrounding the 2014 Olympics. At that meeting, Medvedev issued a decree establishing a special committee responsible for the task and bizzarely called Georgia a threat to the region’s security..

In fact, it is the Islamist insurgency in the North Caucasus which poses a real danger . The deadly attack may be but the first of many planned by these radicals to disrupt the upcoming Olympics and to undermine the Kremlin’s economic initiatives in the region.

In particular, the terrorists seem to be targeting Russia’s plans to build four ski resorts in the North Caucasus, including a central resort in Mt Elbrus able to accommodate 7,500 tourists. As they do in Iraq and Afghanistan, terrorists would cut their nose to spite their face, denying much needed jobs to their brethren. Without properly addressing the security threats posed by the rebels, the Kremlin will be unable to move forward with the development.

At present, Russian law enforcement and security services can’t rise to the challenge of dealing with the region’s growing violence. Terrorists are few, but well paid and well motivated. Their radical Salafi ideology and ample funds are flowing from the Arab Gulf and the extremist corners of the global Ummah.

The heavy-handed cops and spooks are in it for themselves, alienating the locals and undermining their own authority by unnecessary torture and killings.

President Medvedev has repeatedly called for the reform of Russia’s domestic security forces, particularly to reduce internal graft and crime. The government will need to drastically restructure its law-enforcement agencies and eradicate rampant corruption to respond effectively.

But structural reforms cannot be implemented overnight; in the meantime the civilian population remains vulnerable.

Friday’s massacre is not the first time these extremists have struck the region. And the terrorists have shown no compunction about attacking crowded venues further afield as well. Witness the bombings in the Moscow subway and at Domodedovo airport. Moreover, the international attention focused on the games would provide the terrorists an unparalleled opportunity to give Russia a very public black eye.

History provides numerous examples of major international events disrupted by terrorist attacks. One tragic example of course is the 1972 Summer Olympics in Munich, when “Black September” terrorists from Yasir Arafat’s Fatah organization took hostage and eventually massacred members of the Israeli Olympic team. Just three years ago, a threat from al-Qaeda led sponsors to cancel the 2008 Dakar car race.

For history not to repeat itself, the Kremlin’s rulers must act now to develop an effective strategy for dealing with Islamist terrorism in the North Caucasus. They must start treating the North Caucasus Muslim citizens as equals, to build trust, and to make them stakeholders in their own region. Instead, for the last two decades, inside Russia proper, these ethnic groups are called horrible ethnic slurs, treated like second-class citizens, and brutalized by police.

Moscow and its viceroy Alexander Khloponin must find true, clean anti-insurgency leaders, preferably local; implement far-ranging structural reforms that will enhance the integrity and effectiveness of intelligence services and law enforcement. Moreover, Russia’s domestic security forces must improve training, cooperation and intelligence sharing with their Western counterparts.

Successful reform will not only help Russia provide the level of security necessary and expected at a high-caliber international event like the Olympics, it will also provide the necessary groundwork for dealing successfully with the long-term terrorist challenge in North Caucasus.