A Palestinian accused of masterminding a suitcase bomb explosion Thursday at the El Al check-in counter at Madrid airport had been under surveillance since entering Spain at the end of April because western security services suspected him of terrorist activities, an informed diplomatic source said today.

The incident bore similarities to an attack foiled at London's Heathrow Airport three months ago when an Irish woman was stopped as she was about to board an El Al flight, unaware that a suitcase given to her by her Palestinian boyfriend contained explosives.

Madrid police are interrogating Nasser Hassan Ali, who, police said, had posed as a drug smuggler and duped a Spanish petty criminal, Isaias Jalafe, into trying to fly on El Al to Tel Aviv with a suitcase Hassan had said contained narcotics but that actually was laden with explosives.

There was no confirmation of a report today in the Madrid newspaper El Pais that Hassan had confessed and told authorities he was obeying "superiors in Damascus."

A police statement issued last night said Hassan was carrying a false Syrian passport and was an officer in the Abu Musa guerrilla group, a Syrian-backed Palestinian faction that opposes the leadership of Yasser Arafat.

On Thursday, Jalafe had aroused the suspicions of an Israeli security officer at the El Al check-in counter. His suitcase was subjected to a rigorous check and suddenly smoke began to pour out of it, witnesses said. Seconds later the suitcase exploded, injuring 12 people, two of them seriously, and Jalafe was arrested on the spot.

Hassan was arrested nine hours later at a modest apartment he rented on the outskirts of Madrid. The diplomatic source said Jalafe had been shown photos of Arab terrorism suspects by police and had identified Hassan as the man who supplied him with the suitcase.

"Police knew who Hassan was and where to find him," the source said. The police statement said incriminating documents and bomb-making materials were found in Hassan's apartment.

The bomb in the suitcase was homemade -- of phosphorus, potassium chlorate and sugar -- and had a timing device, police said. Had it escaped detection and functioned properly it would have exploded two hours after takeoff when the Boeing 767, with 100 passengers aboard, would have been flying over Italy, they said. The bomb at Heathrow, by contrast, was highly sophisticated and unobtrusive.

The police statement, elaborated on by the source, said Hassan went to Paris in early April, before the U.S. bombing of Tripoli, with the assumed Syrian identity.

His mission in France was said to be to recruit a suitable "passenger" who would board an El Al flight in Paris with explosives. Failing to make such a contact, Hassan reportedly was redirected by his controllers to Madrid.