For the past two years the British have kept as low a profile as possible in southern Iraq. The motto for our troops and our increasingly defensive politicians has been to keep our heads below the parapet while the bombers wreaked havoc in the north. In Basra, at least, no news was good news.

No longer. The quietude has been rudely broken, first by a series of horrific roadside bombs that have killed and injured more than a dozen of our soldiers in the past month, and now by the extraordinary sight of a British armoured vehicle being set alight by an angry local crowd.

It is now simply impossible to pretend that all is well in the British sector of Iraq, or that the south could be regarded as free from the war taking over the centre of the country. Like it or not, the British are being dragged out of cover into the limelight, and with that must come the hard questions of what we are doing there, what it is costing, and when we will get out. Unnerving though the phrase "exit strategy" might be, it is one that can no longer be avoided.

The details of Monday's astonishing, and disturbing, story are only just beginning to emerge. But the story as it stands is bad enough. Two British special servicemen break through a roadblock, killing an Iraqi policeman and injuring others, are arrested and handed over to the militia, to be rescued by a British force of armoured vehicles that breaks into the prison and causes a major riot. Fortunately the pair were rescued and British casualties were minor. Less fortunately, several Iraqi civilians were reported to have been killed.

The details are bad enough - and it is noticeable that the Defence Minister, John Reid, paid no heed of the Iraqi casualties in his praise for British forces yesterday. What the drama has revealed underneath, however, is that relations between the British occupying forces and the Shia inhabitants are very far from being as good as local commanders and British ministers have been asserting. Independent reports are few and far between, since most journalists are holed up in the protected Green Zone of Baghdad, and the two best reporters in Basra, working for American papers, have both been killed. But from what we now know, it looks as if the British have bought peace by in effect handing over power to local tribal leaders and the police, which has been heavily infiltrated by radical elements and the Army of Mehdi. With the violence escalating at such a pace further north, the British now have to face the fact that they too are being drawn into the vortex.

That is no cause for panic cries of "troops out". But it is every cause for thinking of the end game. We, like the Americans, are caught in a dilemma. We are both a cause of the problem and a protection against it. The withdrawal of our troops would remove a major irritant to the local population and a glaring point of propaganda for the insurgents. On the other hand, to withdraw our troops at this moment might only make the situation worse by encouraging the insurgents and leaving the local forces too weak to hold the ground.

It is a dilemma of our own making, and we must start addressing it honestly. In the end the Iraqis have a better chance of developing a viable state when they are rid of the whole taint of occupation. We need to give a clear signal to the Iraqi population that this is our intention as soon as circumstances allow. That means giving some form of time framework. In the meantime, we must do more to help the Iraqis sort out at least the criminal activity burgeoning beneath the cover of insurrection and to bring in its neighbours to help with a solution. On this week's evidence, we are failing on all counts.