On a wooded hilltop overlooking his city of exile, in the pouring rain of an English winter's afternoon, Alexander Litvinenko was buried yesterday.

But any thoughts that the controversy that has engulfed the extraordinary death of the former KGB lieutenant colonel would also be laid to rest were soon banished. For here assembled around the muddy graveside in the ornate Victorian necropolis of Highgate Cemetery, the last resting place of Karl Marx, were some of the Kremlin's most outspoken opponents.

Yet it was not the spectre of communism past that haunted the proceedings in north London, it was Russia's capitalist present, Chechnya and that of Islam too.

Chief among the 50 mourners, who gathered alongside Mr Litvinenko's widow, Marina, and their 12-year-old son, Anatoly, was President Putin's arch rival Boris Berezovsky. The Russian billionaire's presence in London continues to infuriate the Kremlin. Yesterday, he was one of six pallbearers to lower his former ally's oak coffin into the damp earth. The casket had been sealed under the supervision of public health experts.

Joining Mr Berezovsky in the grim task was Akhmed Zakayev, the former Chechen resistance leader now living in London after a long battle against extradition to Moscow. There was also the film-maker Andrei Nekrasov. His 2004 film Disbelief was based on Mr Litvinenko's controversial book claiming that it was the Russian security services that were responsible for the 1999 Moscow apartment bombings which killed 300 people. Mr Putin blamed the atrocities on Islamic rebels and the attacks paved the way for Russia's second bloody Chechen offensive.

During the funeral, Lord John Rea, director of the Save Chechnya campaign, held aloft a picture of the Russian journalist Anna Politkovskaya, a vehement critic of Mr Putin's actions in Chechnya. Mr Litvinenko was investigating the circumstances of her murder at the time of his own poisoning, he claimed.

Also carrying the coffin was the former Israeli politician Alex Goldfarb, who now chairs Mr Berezovsky's Washington-based International Foundation for Civil Liberties, and has been acting as the Litvinenko family spokesman following the former spy's poisoning by polonium-210.

According to Mr Goldfarb, it had been Mr Litvinenko's wish that the service would be non-religious and non-denominational. "Unfortunately some people appeared and against the explicit wishes of the widow performed Muslim rites over the funeral. We had a choice to turn it into an unseemly situation, but Marina asked us to respect the memory of Alexander and let these people do what they did. Let God be their judge," he said.

Before the ceremony, a small group, led by Mr Litvinenko's father, Walter, said prayers for the dead man at the Central London Mosque in Regent's Park. There, according to Ghayasuddin Siddiqui, head of the Muslim Parliament, passages from the Koran were read and the imam said a special funeral prayer.

Mr Zakayev claimed Mr Litvinenkoswitched faiths to Islam "on his deathbed" - a suggestion rejected by Mr Goldfarb. Mr Siddiqui said the conversion had happened 10 days before he was poisoned. Others claim the former army officer continued to wear a Christian cross until his death.

The Litvinenko affair, as we must now call it, grows curiouser and curiouser. In London the Itsu sushi bar in Piccadilly has now been given a clean bill of health. The spotlight has shifted to the Millennium Hotel in Mayfair, where seven members of the bar staff have been affected by radiation. The bar is the place where Alexander Litvinenko is believed to have met two Russians on 1 November. After a spell under observation, the talkative Italian, Mario Scaramella, has been discharged from hospital.

Meanwhile in Moscow, British detectives are trying to interview the two Russians who drank with Mr Litvinenko at that possibly fatal meeting. The one they managed to see was reported next day to be in a coma, suffering radiation sickness or absolutely fine - take your pick. The other, Andrei Lugovoi - who seems to have been a regular visitor to London through the autumn - is in the same Moscow hospital, perhaps suffering the effects of radiation, perhaps not. He may or may not have been prepared to speak to the Met's finest yesterday.

Back in London, the former spy was laid to rest in the cemetery where Karl Marx is buried, his sealed coffin borne by the elite of Russia's self-appointed opposition in exile. But mystery pursued him to the grave. His father believed that he had converted to Islam. A ceremony in his name took place at Regent's Park Mosque. The helter-skelter of events between the first disclosures about Mr Litvinenko's illness and his interment is improbable even by the most far-fetched standards of Cold War espionage. Planes were grounded in London and Moscow; air passengers around the globe were warned that they might have been exposed to radiation. A former Russian prime minister was rushed home from Ireland, apparently poisoned - but not, he later insisted, by President Putin. Traces of radiation were detected as far apart as the British embassy in Moscow and ar5enal's Emirates stadium. and we are all experts on polonium-210 now.

Rip-roaring stuff all this may be. But it is important not to lose sight of two exceptionally serious aspects. The first is that an outspoken foe of Russia's President has been deliberately killed by a lethal dose of radiation in London. The authorities in London and Moscow have a duty to do their utmost to find the culprit. That the Russian authorities have undertaken to assist the investigation is a positive sign. They must be kept to their word.

The second relates to British-Russian relations. Russia's foreign minister, Sergei Lavrov - an adept and experienced diplomat - has warned of the damage that politicising the affair would do to bilateral relations. Fear of where the findings might lead, however, must not be allowed to inhibit the British investigation. Ministers have so far been wisely cautious in their statements. They have declined to speculate about where the blame may lie, deferring to the police. The speculative running has been made by sections of the British media and certain members of the recent Russian emigration, who have Mr Putin in their sights. Most of the Moscow media, needless to say, favour quite a different conclusion. A documentary fiercely critical of Britain was aired on Russian state television a couple of nights ago.

It would be wrong to indict the Kremlin without justification. If evidence is found that points in that direction, however, there must be no soft-pedalling because of our need for Russian energy or fears about the possibly destabilising effect on the position of Mr Putin. There need be no worries then about the potential damage of the Litvinenko affair to Britain-Russia relations. The damage will already have been done - and the Kremlin will have only itself to blame.

Russia revealed yesterday that it planned to send its own investigators to London in connection with the Litvinenko affair as Germany became the third country to be dragged into the radiation murder mystery.

It was the first time that Moscow has confirmed it will dispatch its own investigators to the UK, although prosecutors remained tight-lipped about precisely when the visit might take place.

Russia has opened its own investigation into Mr Litvinenko's murder, to run alongside the British inquiry. Russian investigators are keen to question two of his friends in Britain. Moscow has long sought the extradition from the UK of the oligarch Boris Berezovsky and the Chechen rebel spokesman, Akhmed Zakayev. It now has an excuse to interview them as they were both close associates of Mr Litvinenko, who had recently become a British citizen.

Russia's determination to undertake its own inquiries in Britain is unlikely to be welcomed. Andrei Nekrasov, a friend of Mr Litvinenko, said yesterday there was concern among émigrés in London that the Kremlin would use the inquiries as a "pretext to harass exiles".

Meanwhile, German police disclosed that traces of radiation had been found at two properties linked to a key witness in the Litvinenko case.

Officials in Hamburg said they had detected low traces of radiation at a flat linked to Dmitri Kovtun, one of the two Russian businessmen who met Mr Litvinenko on 1 November, the day he was allegedly poisoned.

"There are indications that there has been a source of radiation here, but no source of radiation has been found," said Ulrike Sweden, a police spokeswoman.

Radiation detection experts were also checking the plane that Mr Kovtun flew to London in on the day he met Mr Litvinenko, according to a spokesman for the airline's operator, Germanwings.

Further traces of radiation were found at a building in Pinneberg, in the northern German state of Schleswig-Holstein yesterday, which belongs to Mr Kovtun's former mother-in-law.

Mr Litvinenko, a critic of the Kremlin, was killed in London by a lethal dose of polonium 210, a radioactive substance. He died on 23 November and was buried in London on Thursday.

Mr Kovtun travelled to London from Germany on to meet the ex-spy, he said in an interview with the website stern.de before he was taken to hospital.

Hamburg police said neither Mr Kovtun nor his ex-wife nor her mother were suspects in the investigation.

The traces of radiation could be a sign that a source of radiation had been there previously. Interfax news agency reported last Friday that Mr Kovtun's business partner, Mr Lugovoy, had damage to vital organs consistent with exposure to dangerous levels of radiation. British detectives in Moscow have already questioned Mr Kovtun, along with Russian investigators.

The international hunt for the killers of Alexander Litvinenko, the former KGB agent, took a new twist last night as it emerged that a Russian businessman was being investigated as the source of the radiation used in the murder.

Dimitry Kovtun, 41, a former soldier in the Soviet army, and one of three men who met Mr Litvinenko at a hotel on the day he was given a fatal dose of radiation, is the latest suspect in the case.

German police revealed that they had found traces of polonium-210 - the material used in the poisoning - at properties visited by Mr Kovtun in Hamburg before he flew to London to meet Mr Litvinenko.

Hamburg's chief prosecutor Martin Köhnke, commenting on Mr Kovtun, said there was now "a reasonable basis for suspicion that he may not just be a victim but could also be a perpetrator".

He added that the authorities were investigating him on suspicion that he may have handled radioactive material.

Mr Litvinenko, a critic of President Vladimir Putin, whose regime he blames for his murder, was given a massive dose of radiation on 1 November.

His widow, Marina, spoke publicly this weekend for the first time, and blamed the Russian authorities for his death. Russiahas strongly denied carrying out the murder.

Scotland Yard believe Mr Litvinenko was probably poisoned twice, once at a sushi restaurant in Mayfair, and then at the Millennium Hotel, also in central London, where he had a brief meeting with Mr Kovtun and two of his business partners.

Anti-terrorist officers from the Metropolitan Police, are in Russia trying to interview witnesses, including Mr Kovtun, who is in a Moscow hospital where he is said to be suffering from a low dose of radiation poisoning.

If detectives can prove that Mr Kovtun, who denies any wrongdoing, handled polonium-210 before Mr Litvinenko was poisoned, then there would be a strong conspiracy case against him. Detectives from Scotland Yard were reported to be travelling to Germany to investigate the latest findings.

The potential breakthrough came as Hamburg state prosecutors confirmed that that they had found traces of polonium-210 in city locations visited by Mr Kovtun. The radiation was discovered in a flat belonging to Mr Kovtun's former wife, Marina Wall, 31; on documents handed by Mr Kovtun; in a car that he had used; and at the home of his former mother in law.

German authorities said Mr Kovtun spent the night at his ex- wife's flat in the district of Ottensen on 31 October. He flew to London the next day.

Werner Jantosch, the Hamburg police chief heading the case, said: "He [Mr Kovtun] may have been one of the culprits, although we think it is unlikely that the murder plot was hatched in Hamburg." Police said there were no traces of polonium-210 on the flight that Mr Kovtun took from Hamburg to London.

Mr Kovtun, a German residence permit holder, served as a Russian soldier in East Germany and Czechoslovakia. After the collapse of the Soviet Union in 1991, he married a German woman whom he later divorced.

German police said Mr Kovtun worked as a business consultant and advised Western companies that wanted to set up operations in Russia.

Widow tells of last visit to spy

The widow of the murdered former Russian agent Alexander Litvinenko spoke yesterday about her husband's last hours. Marina Litvinenko, 44, left, said his final words to her were: "Marina, I love you so much. Even until the last day, and the day before when he became unconscious, I thought he would be okay," she told The Mail on Sunday. "We were both completely sure that he would recover. We had been talking about bone-marrow transplants and looking to the future."

She left her tired and weak husband at night. University College London Hospital telephoned her the following evening at about 9pm, telling her to come as quickly as possible. But by the time she arrived her husband had died.

Shortly after his election as Russian President in 2000, Vladimir Putin was driven to the headquarters of the former KGB in central Moscow to celebrate the anniversary of the founding of the Soviet secret police.

The former KGB colonel, a Soviet-era spy in East Germany who later reached the pinnacle of the security services by becoming the first civilian director of the KGB's domestic successor organisation, the FSB, was returning to his spiritual home. Inside the Lubyanka, the new Kremlin leader addressed 300 of the former KGB's finest. "Instruction number one of the attaining of full power has been completed," he dead-panned.

Six years on, Mr Putin's joke looks more like a statement of fact. The poisoning of the ex- FSB agent Alexander Litvinenko in London, which according to at least one Russian commentator has cast relations with the West back to the days of the Cold War, has placed Mr Putin's links to his former FSB colleagues under fresh scrutiny.

The President has made no secret of his plan to bring Russia's strategic industries under state control, as witnessed by the dramatic fall from grace of Mikhail Khodorkovsky, the owner of Russia's biggest oil company, Yukos. Less well-known, however, are the KGB connections of the men appointed to powerful positions in at least three of the top state-run companies where relations with the Kremlin are already tightly intertwined.

Two weeks ago, a former KGB general, Valery Golubyev, was appointed to a top position at the state-run energy giant Gazprom, which has gobbled up oil assets, media, banking interests and farms in a rapid expansion. Mr Golubyev, named deputy chief executive officer, was the third management committee member to hail from the former KGB and like Mr Putin served in the mayor's office in St Petersburg in the 1990s. The Gazprom chairman, Dmitri Medvedev, is First Deputy Prime Minister and tipped as a possible successor to Mr Putin when the President is constitutionally bound to stand down in 2008 after two terms in office. The state-run oil company Rosneft - the country's second biggest oil producer - has as its chairman Igor Sechin. Again a former associate of Mr Putin in his home city of St Petersburg, Mr Sechin is also the Kremlin's deputy chief of staff and believed to be ex-FSB. He hired a young aide in September, Andrei Patrushev, who happens to be the son of the current FSB director, Nikolai Patrushev. And the chairman of the national airline Aeroflot is Viktor Ivanov, another close Putin ally from St Petersburg who worked with him at both the KGB and the FSB.

These are the "siloviki", or the power men, who were once members of the feared secret police but who now hold sway in the corridors of the Kremlin as well as in the boardrooms of the most important state-run companies. They have a spring in their step after the humiliation and demoralisation caused by the collapse of the Soviet Union. The "siloviki", including Mr Sechin and Mr Ivanov, have been blamed for the measures that have rolled back democratic freedoms in Russia, by placing restrictions on political parties and non-government organisations, and tightening state control of the media. "The country is run by the KGB, whatever they call themselves," Russian analyst Yevgenia Albats, commented recently.

Since the days of the Soviet Union, when the KGB served as the eyes and ears of the Communist regime, former officers have put their discipline, knowledge and sources to good use in private industry and even the murky world of the black economy. But does it matter that "KGB Inc" has taken on a new importance under Mr Putin? Certainly at Gazprom, the KGB links are not considered a handicap. Inside the soaring Moscow headquarters of Russia's biggest company, spokesman Sergei Kuprianov seems to be afflicted by temporary amnesia when asked about the top management officials who are former FSB members. But he quickly rallies to point out that some of the most talented professionals to lead the state have come from the ranks of the KGB. "Many people who previously worked for the KGB work for business and many occupy high posts in business," he went on. The record of Mr Golubyev, the new deputy CEO, stands for itself, he said. As for Konstantin Chuichenko, who heads the legal department, he is a "class act in the legal area". The third of the 17 Gazprom management committee members with known KGB links, Sergei Ushakov, "is continuing his professional career in charge of security services," Mr Kuprianov said.

Jonathan Stern, a Russia expert who is the director of natural gas research at the Oxford Institute for Energy Studies, says plenty of former MI5 employees are now in top jobs in British industry. "Putin appointed people he trusts because in the 1990s there were young unprincipled cowboys who got very rich - and you can't have that again," Professor Stern said. But where there is a risk in Russia, he says, is that "a small group of people are controlling very, very large state assets, and that is a concern."

According to Olga Kryshtanovskaya, who has studied the Russian elite for many years, the FSB, police and military have become the dominant force under Mr Putin's presidency. She said in a study published in 2004 that the most marked increase in the "siloviki" had been in the regions, where five out of seven presidential representatives were former KGB or military men.

Ms Kryshtanovskaya told The Independent that there was cause for alarm in a political system where the presidency has the preponderant power. "It's a problem because in the past there was collective decision-making. For example when [former president Yuri]Andropov wanted to invade Afghanistan, there was a collective decision by the Politburo. Now there is no such organ and the president himself decides." According to some Moscow commentators, Mr Putin is "very hardline" politically, but an economic liberal. But Ms Kryshtanovskaya compares the economic centralisation in Russia to South Korea, which placed big companies under state control. Why is Mr Putin doing this? "Because he wants full control," she says.

Western countries had become wary of Mr Putin over the past two years, when an increasingly assertive Russia started to bully its former satellite states by using gas as a weapon, prompting fears that Moscow might not be a reliable energy supplier for Europe. The Organisation for Economic Cooperation and Development said in a damning economic survey of Russia last month that, "the expansion of state ownership overall must be regarded as a step back," as it pointed to the expansion of state control in the "strategic" sectors such as oil, aviation, power-generation equipment, automobiles and finance.

Gazprom's "seeming insatiable appetite for asset acquisitions" has been at the expense of a focus on its core business, the OECD said. Russians joke that Gazprom - the world's biggest gas company - is not just a state within a state, but the state itself. Hardly surprising then, that there are rumours in Moscow that Mr Putin intends to do a job swap with Mr Medvedev at Gazprom when he leaves the presidency in 2008. "EU countries decided that Putin is not a market reformer and a nasty man and they can't trust him. This perception will have been reinforced by the Litvinenko affair. It reinforces what people want to believe," said Professor Stern.

Mr Putin's deputy spokesman, Dmitry Peskov, accuses the West of turning an economic issue into a political problem. Gazprom is a corporation, he says, and is acting like a corporation. "It's not Kremlin Incorporated, and they have to protect their interests." Challenged about Gazprom's decision to cut off gas to Ukraine last winter, he replied: "Here's a very simple example. Imagine if you don't pay your gas bill in London. The gas distributor will cut it off. Are you going to hold a press conference and blame the gas company for violating your human rights? This is the same story. It's all about economics."

"The EU have been criticising us for subsiding countries' economies, by applying lower rates for natural gas. When we started to raise the price, they started to criticise us for using the gas as a tool of political pressure." In other words, the view from Mr Peskov's third-floor office in the Kremlin is that Russia is damned by the West if it does, and damned if it doesn't.

According to one of Moscow's dynamic young businessmen, Alexander Izosimov, who is CEO of Beeline, a leading mobile telephone company listed for the past 10 years on the New York stock exchange, Russia is at a crossroads. "We are at a historic moment, when Russian capital for the first time is investing outside, and so far it's not welcome. The government is taking protective measures in response to that." He said the Russian government would ensure that some industries, including the military and energy, would be out of reach for Western capitalists, as the Kremlin intends to create "national champions" that will pull the economy behind them.

But is the deepening state influence a threat to Russian democracy? Ms Kryshtanovskaya worries that civil society has no input because "the parliament is like a department of the Kremlin. Everything comes from the top. These people don't want to give up power, they want to concentrate power."

Mr Peskov readily acknowledges that Russia does not have a Western-style democracy as he outlines the concept of "sovereign democracy" which holds sway over a sprawling country with one foot in Europe and the other in Asia, 11 time zones and a Muslim population of 20million. "We are not going to make a copy of Britain or the United States. We have this term of sovereign democracy. We have our own society, that absorbs hundreds of years of our achievements and disappointments, hundreds of years of co-existence of different nations, of different religions. All of this makes our system a bit different than what you have in Britain. But just because we are different doesn't mean that we are wrong - or that we kill people with radiation materials in the centre of London."

Now, as the presidential election looms after next year's parliamentary polls, nobody can predict which way the Russian bear will turn: back towards its authoritarian past, or striding resolutely along the path of greater transparency, economic integration with Western markets and the rule of law. "Things are getting much more complicated. Russia is trying to politically assert its position in the world politically and economically. This giant is awakened and it's trying to get up - and not everybody accepts it," says Mr Izosimov. "In Russia there are two camps - one that wants to integrate, while the other says, why bother, we have tons of oil, they will come to us anyway."

Professor Stern agrees, but warns: "What is very dangerous is that if they think they don't like us and don't trust us, they will decide - what the hell."