(FORTUNE Magazine) – One day last August a U.S. Customs inspector in Miami studying an X-ray image of a cargo container just in from the Middle East saw something that gave him pause. The image, made as part of a routine inspection, showed a dense object inside resembling a blunt bullet about two feet long. The thing supposedly was part of a shipment of a family's household goods. Its shape hardly suggested domesticity, though. Rather, it conjured up a dark al Qaeda dream: to acquire a tactical nuclear bomb, which could be the size of an artillery shell, sneak it into the U.S., and set it off in the heart of a major city.

Customs officials hustled the unopened container to a corner of Miami's port and summoned the local bomb squad. Meanwhile, port police began evacuating the area. The scare ended a couple of hours later when the bomb squad got to the object. It turned out to be a spent howitzer shell its owner used as a flower pot.

Thank goodness for the comic relief. To aficionados of angst--that is, anyone tuned in to the news since Sept. 11--no threat grips the mind like the possibility of a terrorist nuclear attack. Even a small nuke set off in New York City or Washington, D.C., could kill hundreds of thousands and crater the world economy. A "dirty bomb" using conventional explosives to spread radioactive material might kill only a few people, but the resulting cleanup costs and paralyzing fear could wreak economic havoc.

The black market for nuclear materials is dismayingly active. The International Atomic Energy Agency has compiled a list of nearly 400 cases of purported nuclear smuggling over the past decade. Mere ounces of certain radioisotopes in wide commercial use might be enough to make a dirty bomb. The risk is compounded by all the cargo entering the nation's 301 ports of entry. Most of it arrives in jam-packed containers that are eight feet wide and 40 feet long, offering terrorists a myriad of places to hide things. Each year more than 16 million of the containers are brought into the U.S. by trucks, planes, and ships. No wonder Warren Buffett predicted last spring that a terrorist attack on the U.S. involving a "major nuclear event" is "virtually a certainty."

But here's some good news: Efforts to erect technological barriers against nuclear smuggling are already well advanced. Drug lords, ironically, are largely to thank. Over the years they have invented countless tricks to hide their wares in cargo--implanting cocaine into a cubic yard of crushed cans, stuffing a hulking factory machine with pot. In response, Customs has pushed the envelope on detection technology, even funding research on radiation detection. The reason: "Marijuana is radioactive," says Roy Lindquist, a former Customs manager who is now an executive at OSI Systems, a Hawthorne, Calif., maker of inspection systems. Marijuana plants concentrate potassium in their leaves, including potassium-40, an isotope that emits gamma rays.

A prototype cargo scanner Customs is exploring would put even Superman to shame: It can not only look through cargo containers' steel walls but also reveal what the things inside are made of. The scanner could make a lump of uranium deep in a container stand out like the eye of a panther caught in a car's headlights.

Of course, technology can do only so much to block nuclear smuggling; measures such as stepping up efforts to secure the former Soviet Union's nuclear materials are also urgently needed. But cargo-scanning technology is like the goalie on a hockey team: the main backstop.

In some respects, nuke stuff is easier to spot than drugs, thanks to its telltale gamma-ray emissions. The radioisotopes most often cited as likely ingredients of dirty bombs, such as cobalt-60 and cesium-137, emit lots of high-energy rays. But radiation monitors are no silver bullet. Highly enriched uranium, the most likely ingredient for a terrorist atomic bomb, emits little gamma radiation and is notoriously hard to detect. Further, the monitors are prone to cry wolf--many things passing through ports are slightly radioactive, from plantains (which contain potassium-40) to ceramic tiles (which may contain traces of uranium), says Frank Mullin, chief of Customs' contraband enforcement team in Miami.

To minimize its exposure to the failings of any one technology, the agency has long relied on a "layered" system of diverse detectors, from software for spotting anomalies in shipping manifests to X-ray scanners. (Low-tech methods, such as sorting through cargo by hand, also come into play.) Radiation monitors work well as a layer at ports, for they can be used with X-rays to snag would-be dirty bombers on the horns of a dilemma: to shield or not to shield. To ship a hot little lump of something like cobalt-60 past the thousands of radiation pagers (pocket-sized detectors that beep when struck by gamma rays) that Customs has put in its staffers' pockets since Sept. 11, terrorists would have to use heavy shielding. Such shielding must be highly effective at blocking radiation, so it would likely stand out in X-ray images.

Capitalizing on this logic, American Science & Engineering, a Billerica, Mass., inspection-system maker, last year rolled out a $2 million container-inspection system that combines two types of truck-mounted X-ray scanners with a highly sensitive array of radiation monitors able to register both gamma rays and neutrons. The latter are the particles that drive atom-splitting chain reactions in nuclear power plants and bombs. Neutron detectors help spot plutonium isotopes, which continually emit the particles like hiccuping dragons.

Coupling X-ray scanners with radiation detectors doesn't solve the false-alarm problem. But novel gamma detectors are in the works to address this issue. They're designed to take advantage of the fact that different radioactive materials emit rays at distinctive energies. Indeed, if our eyes registered gamma rays instead of visible light, cobalt-60 might appear a brightly glowing blue, while technetium-99m, a relatively safe medical tracer, might seem a luminous red. Radiation pagers now widely used say little about these telltale energy levels. But so-called CZT detectors, which employ an alloy of cadmium, zinc, and tellurium to register gamma rays, say a lot--they effectively see in color, readily distinguishing dangerous from benign gamma emitters.

CZT detectors are still mostly research devices. They cost roughly $8,000--about three times more than radiation pagers--discouraging their widespread use, says Ralph James, associate director for energy, environment, and national security at Brookhaven National Laboratory on Long Island. Less expensive versions may be available within a couple of years.

But what if the smuggled material were highly enriched uranium, whose weak gamma emissions are easy to shield? The stuff might well stand out on an X-ray--uranium is 67% denser than lead. But here's the bad news about X-ray scanners: Only about 100 large-scale systems are deployed at U.S. ports, and few are powerful enough to see through containers full of dense objects. One of the most powerful in wide use is the vehicle and cargo inspection system, or VACIS, made by Science Applications International Corp. of San Diego, which at $6 billion in revenues is one of the biggest companies in this field. SAIC's basic version can penetrate 4.5 inches of steel.

I recently saw the one that revealed the sinister-looking flower pot in Miami. Resembling a light-and-power bucket truck, the $1.3 million system swings into action by arching a long, jointed arm over the top of a stationary cargo container. At the end of the arm is a metal box the size of a small TV that contains a lump of radioactive cesium. When a tungsten shutter on the box opens, the cesium's 662 KeV (100,000 electron-volt) rays are beamed through the container to a bank of X-ray detectors on the truck (shades of Gort the robot doing its thing in The Day the Earth Stood Still). As the VACIS rolls past the container, the cargo shapes inside materialize on a computer display inside its truck cab. Because its rays are so penetrating, the system doesn't need to beam very many to form an image. A person scanned by the VACIS would get a radiation dose far less than that from a chest X-ray, says SAIC.

For even more penetrating rays, the company offers a VACIS with a cobalt-60 X-ray source--its 1.3 MeV (million electron-volt) beam can see through 6.5 inches of steel. But that's still not enough to thoroughly probe some containers. "If you had a full load of motor parts, you wouldn't have a chance to see all the way through" without X-rays packing at least five MeVs, says Dolan Falconer, CEO of ScanTech Sciences, an Atlanta startup developing a system to beam rays at up to ten MeVs.

To make such beams, inspection-system makers have turned to a technology pioneered to irradiate tumors: compact linear accelerators, which slam near-light-speed electrons into metal targets to elicit powerful X-rays. (In an ironic twist, the compact accelerators being rolled out to help prevent nuclear explosions sprang from research at Los Alamos National Laboratory, home of the atomic bomb.) The Eagle cargo-inspection system from Advanced Research & Applications Corp., a small company in Sunnyvale, Calif., uses a linear accelerator to generate six MeV rays. The Eagle is arguably the first mobile X-ray system that covers the waterfront--its beam can penetrate more than a foot of steel, putting nearly all cargo containers within its scanning ambit. After testing a prototype in Miami, Customs last year disclosed plans to purchase up to eight Eagles over the next few years.

But ultra-high-powered X-rays also have a downside. They tend to amplify the "clutter problem"--the more things cargo inspectors can see in X-ray images, the more visual clutter they must sort through to spot things that matter. Which brings us to the beyond-Superman technology--the one that can reveal cargo's chemical composition. Called pulsed fast neutron analysis, it beams neutrons into cargo containers. The particles basically tickle the nuclei of certain atoms, such as those of nitrogen and oxygen, making them issue brief gamma-ray giggles. The pattern of giggles reveals the elements that emitted them, which in turn shows the approximate chemical composition of scanned objects. (When tickled this way, nuclear materials emit distinctly sinister cackles composed of neutrons--some of their atomic nuclei split.)

The neutron-scanning leader is Ancore Corp., a small company in Santa Clara, Calif., that was recently acquired by OSI, a California inspection-systems firm. Ancore's president, physicist Tsahi Gozani, who co-invented the technology in the late 1980s, has fought an uphill battle ever since to convince potential buyers that it can be cost-effective. His work is cut out for him: Among other precious parts, Ancore's $10 million scanner includes a custom-built, 30-foot-long atom smasher to generate neutron beams.

Still, federal agencies and other investors have put $70 million into developing the technology because it can counter such a wide range of smuggling tricks, from molding plastic explosives so that they look like everyday objects in X-ray images to hiding cocaine in factory machines. By analyzing what things are made of, Ancore's scanner automatically highlights suspicious stuff, keeping down clutter. It remains to be seen whether such an exotic device will find a niche at ports. But interest in the technology is clearly rising--last year Customs announced plans to test an Ancore system at a border crossing in El Paso.

Meanwhile, Advanced Research is also developing a way to tickle nuclear materials with its Eagle X-ray scanner. The technique, pioneered by physicist James Jones and colleagues at the Idaho National Engineering & Environmental Laboratory in Idaho Falls, uses high-energy X-rays to elicit telltale emissions of neutrons or gamma rays from the materials. In effect, says Jones, the idea can add an antinuke layer to Customs' defenses without the addition of separate scanners.

Given all the Yankee ingenuity being brought to bear at U.S. ports of entry, you may be sorely tempted to breathe a little easier. But wait. Here's another grim what-if: Terrorists target a major port itself with a cargo-hidden nuke that's set to explode on arrival, before inspection.

Fortunately, Customs has made significant progress in parrying that threat too. A year ago it launched a program under which U.S.-bound containers are prescreened at foreign ports with much the same layered system of technologies used domestically; officials characterize the initiative as "pushing out the border." In November the agency announced that 11 of the world's top 20 seaports had gotten with the program--over two-thirds of the containers shipped to U.S. ports are now, in principle, subject to prescreening.

Okay, now you can breathe at least a little easier--and hope that the screeners do their jobs.

Feedback? ideas@fortunemail.com