(Bloomberg) — Holed up in the Estonian city of Tartu, where theSoviet Union once housed a fleet of bombers, NATO officials aretesting the alliance's ability to defend against cyber-threats byrogue states and terrorists.

One simulation put to participants in the week-long exercisethat continues Friday involves an Internet attack that wouldparalyze military commanders' radar screens, making them unable tosee oncoming missiles or aircraft. Another envisages an attack on ageneral's tablet computer that resulted in the posting of sensitiveinformation online. 

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The exercise has taken on added urgency in the wake the Nov. 13shootouts and suicide bombings in Paris. Spurred by the carnage inthe French capital, defense ministries across Europe are steppingup security and intelligence-sharing in a bid to head offpotentially lethal cyber-strikes by rogue states and terrorists onpublic and military targets.

"The big concern is of the potentially growing nexus betweencyber and terrorism," North Atlantic Treaty Organization AssistantSecretary General Sorin Dumitru Ducaru, said in aninterview on Thursday in Tallinn, the Estonian capital."Cyber- threats are a growing concern and they can be as harmful asconventional threats."

Cyber-warfare

Attacks in the past month, including the downing of a passengerjet over Egypt and the atrocities in Paris, both claimed by IslamicState, have led western governments to step up preparations for along fight against terrorism. NATO countries fear that extremists,like enemy nations, are combining cyber-warfare with moretraditional tactics.

Simulations at the exercises in Tartu, also include thedeliberate crashing of air-force monitoring equipment and thecompromising of security information through a computer wormplanted on a USB stick similar to the real-life Stuxnet virus thatseverely damaged Iran's nuclear capabilities.

"We are well aware of the threats coming," said Lt. Col. DavideManganaro, one of the NATO officials leading the simulation.Islamic State groups are "trying to leak information about NATOmilitary forces. They've been partially successful."

Online attacks

The U.K. government announced on Tuesday that it will spend 1.9billion pounds ($2.9 billion) over five years countering IslamicState's use of the Internet for planning, propaganda and onlineattacks. Chancellor of the Exchequer George Osborne said Britainwill develop an "offensive" capability so the country cancounterattack against hackers, terrorists, criminals and roguestates.

"We are not winning as often as we need to against those whowould hurt us in cyberspace," Osborne told reporters. GovernmentCommunications Headquarters, the U.K. communications- intelligenceagency, is monitoring threats against 450 companies, he said.

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The European Union on Friday warned Belgium and four othercountries to fully implement EU regulations regarding the fightagainst cyber-crime, in particular measures against large-scaleattacks on information systems. The regulations define criminaloffenses and sanctions for criminal behavior online.

Leaders of NATO countries decided to step up cooperation oncyber-defense at a summit in Wales in September 2014. They alsoagreed that a country under cyber-attack could call for supportunder the alliance's Article 5 mutual-defense clause. Until now,they have been mainly concerned about the threat posed by lonehackers and countries using cyber-crime tactics. NATO has warned ofRussia's "hybrid" warfare strategy in its involvement in theannexation of Crimea and the destabilization of easternUkraine.

The threat is becoming more complicated. Three months after 17people died in three days of attacks in and around Paris inJanuary, including nine journalists at magazine Charlie Hebdo,hackers claiming allegiance to Islamic State succeeded in bringingdown websites and taking off air TV5 Monde, a French televisionstation that broadcasts around the world.

"The attacks on a great number of French sites after the CharlieHebdo attacks," said NATO's Ducaru, were "just the firstsignals" of what may come.

–With assistance from Svenja O'Donnell, Alex Webb and ChrisStrohm.

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