This bomb was meant to wreck the Irish peace talks. It will fail.

A 400lb bomb in Ulster, probably planted by an IRA splinter group, caused substantial damage in a small town. But as David McKittrick, Ireland Correspondent, writes, it is unlikely to derail the delicate peace talks now getting under way.

The Northern Ireland peace process last night appeared to have absorbed the disruptive political shockwave generated by a major bomb attack on the Co Armagh town of Markethill.

The bombing, which caused extensive damage but no injuries on the town's market day, was viewed as a deliberate attempt by republican dissidents to wreck the talks process. The IRA denied involvement.

The explosion had an almost instantaneous political effect in that at the last moment the Ulster Unionist party dropped a plan to enter the Stormont talks, where Sinn Fein are already ensconced.

Last night, however, the signs were that the party's entry into talks had been postponed rather than abandoned. Most of the participants predict that the party will go in this week, possibly as early as today, thus involving Unionists and republicans in the same process for the first time ever.

But the bombing served notice that paramilitary violence, which has almost disappeared in recent weeks, may continue to be a feature of the scene. It also created controversy as to whether the mainstream republican movement could have had a hand in the bomb.

The device went off in a van shortly before noon in the largely Protestant town, causing substantial damage to the local RUC station as well as business premises and houses. Security forces later indicated it was a large device containing up to 400lb of explosives.

A half-hour telephone warning call to the BBC gave police time to clear the area and there were no injuries, though several people received treatment for shock. The warning call did not cite a codeword and did not mention which organisation had planted the bomb.

The RUC Chief Constable, Ronnie Flanagan, described it as an attack carried out with total disregard for the safety of people attending the market and of local schoolchildren.

Just before noon the Ulster Unionist Party had let it be known that some of its representatives would arrive at the talks between two and three o'clock. This plan was hurriedly changed, with party leader David Trimble and others travelling instead to Markethill to survey the damage.

Surrounded by wreckage, the Ulster Unionist leader said the circumstances of the attack led him to conclude "that there is a high level of probability that this was the action of the IRA. This merely confirms the warning which we gave on Saturday that there would be a limited resumption of violence by the IRA without (claiming) responsibility."

His comments reflect the belief, widespread in the Unionist community, that the attack must have involved the IRA either directly or indirectly. They suspect that the breakaway "Continuity army council", which may have been responsible, operates in effect under licence from the IRA.

But others, including security sources both north and south of the border, do not subscribe to the belief that the CAC operates under the IRA's covert blessing. The CAC has carried out a number of bombing attacks in recent years: most have failed, though just over a year ago a large bomb at a Fermanagh hotel caused a similar scene of devastation.

Both security and republican sources insist the CAC is not some unacknowledged wing of the IRA but a completely separate organisation which regards Sinn Fein as being so soft as to be traitors to the purist republican cause. It is regarded as occasionally dangerous but incapable of carrying on any sustained campaign of violence.

Within hours of the explosion Mr Trimble despatched a letter to the talks chairman, former US Senator George Mitchell, calling for the expulsion of Sinn Fein from the talks, citing both the bomb attack and recent comments by an IRA spokesman. Sinn Fein negotiator Gerry Kelly said yesterday that the bombing was "regrettable and very disappointing," but declined invitations to express condemnation of the bombing.

Inside the talks the British and Irish governments, anxious to make progress, are working on a procedural motion which would have the effect of "parking" the vexed issue of arms decommissioning and moving almost directly into substantive negotiations. The Secretary of State for Northern Ireland, Mo Mowlam, said: "This attack may well have been a deliberate attempt to sabotage the talks process. We must not let it succeed." Senator Mitchell described it as "an effort to blow up not just a police station but also the talks process. It cannot be permitted to succeed."

But Peter Robinson MP, keeping up the Democratic Unionist party's sustained attack on the Ulster Unionists, declared: "The dreadful irony of Mr Trimble and his minions submissively creeping towards the door of the Stormont talks and diverting away, at least temporarily, because of this bombing will not be lost on the Unionist electorate." And ominously the Loyalist Volunteer Force, a dissident group who are in effect the equivalent of the CAC, warned: "The LVF will step up attacks in response to this bombing. No Unionist worth his salt would sit in these talks with Sinn Fein/IRA."