The report by the independent non-governmental organization calls for a fresh initiative to focus on the peace processes in Mindanao, the Philippines' second-largest island.

The Crisis Group warns in a new report entitled "The Philippines: Counter-insurgency vs. Counter-terrorism in Mindanao" that current security operations are confusing counter-insurgency and counter-terrorism.

Officials say the confusion risks pushing the rebel Abu Sayyaf Group into renewed violence and may spark a broader regional insurgency with the Moro Islamic Liberation Front and Moro National Liberation Front.

The small number of terrorist operatives in the Philippines could, if not addressed, lead to a broader conflict. The Crisis Group report encourages combining military operations with civic action operations against Abu Sayyaf.

"The model involves using counter-insurgency techniques for counter-terrorism goals, but the only way the Philippines will effectively manage domestic terrorism is to secure the cooperation of the MILF and MNLF -- and that requires concrete progress toward formal peace agreements," Kit Collier, a Crisis Group consultant, said in a statement.