FBI Special Agent Anthony Hubbard (Washington) and his Lebanese-American partner Frank Haddad (Shalhoub) are told of a hijacked bus, fully loaded with passengers and containing an apparent explosive device. The bomb turns out to be a paint bomb and the terrorists manage to escape. The FBI receives warnings to release Sheikh Ahmed bin Talal.
Hubbard eventually comes into conflict with CIA officer Elise Kraft (Bening). Hubbard takes a terrorist suspect into custody and arrests Kraft. Afterwards another terrorist threat is made and an MTA bus is bombed. When the FBI captures a man named Samir Nazhde he admits to signing the visa application of one of the suicide bombers in the course of signing many applications for student visas in his job as a lecturer. However, Kraft insists that Samir is not a terrorist and that his continued freedom is vital to the investigation.
The terrorist incidents begin to escalate. A crowded theater is bombed, a kindergarten is held hostage, and FBI headquarters is destroyed with over 600 casualties.
In spite of objections, the President declares martial law and the 101st Airborne Division, under Devereaux (Willis), occupies and seals off Brooklyn in an effort to find the remaining terrorist cells. Subsequently all young males of Arab descent, including Haddad's son Frank, Jr., are rounded up and detained in Yankee Stadium. Haddad resigns in anger. New Yorkers stage violent demonstrations against the army and the racial profiling of the Arabs and the Army fights to maintain control. There are reports of Army killings.
Hubbard and Kraft, now going by the name Sharon Bridger, continue their investigation and capture a suspect, Tariq Husseini. Devereaux kills Husseini in the course of the interrogation. Afterward, Bridger tells Hubbard that Husseini knew nothing of value because of the principle of compartmentalized information and, sickened, she finally tells Hubbard what she knows. It is revealed that she herself provided training and support to militants opposed to Saddam Hussein's regime. After the funding was cut, she took pity on the few of them who had not yet been slaughtered by Hussein's forces, and arranged for them to escape to the United States, ultimately leading to the present situation. She and Hubbard compel Samir to arrange a meeting with the final terrorist cell. Hubbard convinces Haddad that he needs his help and Haddad returns to the FBI.
A multi-ethnic peace march demonstrates against the occupation of Brooklyn. As the march is getting under way Hubbard and Haddad arrive at the meeting place, but Bridger and Samir have already left. Samir reveals to Bridger that he constitutes the final cell while in another sense he says, "there will never be a last cell." He straps a bomb to his body which he intends to detonate amongst the marchers. Hubbard and Haddad arrive in time to stop him leaving but Samir shoots Bridger in the stomach as she struggles to stop him. Hubbard kills Samir but despite their best efforts he and Haddad can only watch as Bridger bleeds to death saying the first half of the lords prayer and then in arabic allahu akbar meaning god is great .
Hubbard, Haddad, and other FBI agents, raid Devereaux's headquarters to arrest him for the torture and murder of Husseini. Deveraux insists that under the War Powers Resolution the authority vested in him by the President supersedes that of the court which issued the arrest warrant. He then commands his soldiers to aim their guns at the agents, resulting in a Mexican standoff. Hubbard reminds Devereaux that the civil liberties and human rights which he took from Husseini are what all his predecessors have fought and died for. Devereaux finally submits, and is arrested. Martial law ends and the detainees are freed, including Haddad's son.