Eyewitnesses said the arrests took place on Friday afternoon in Old Town Street, in the centre of Plymouth, the home town of bomb suspect Nicky Reilly.

Police said Reilly carried a home-made bomb made with a mixture of chemicals and nails into the Giraffe family restaurant in Exeter on Thursday lunchtime. He was slightly injured when it exploded but no one else was hurt.

Eyewitnesses said two dark-skinned men were arrested during the operation in Plymouth.

Rebecca Pope, 25, said she was looking out of a window above the Bagatelle Cafe when she heard shouting. She said armed police pointed weapons at the men, who were sitting at a table outside the cafe with a child in a pushchair. "Everyone was screaming," said Ms Pope. She said both of the men were searched and put into paper suits before being placed in unmarked cars. The pushchair was taken away by a policewoman.

Police sources later revealed the bomb was a "viable" device constructed of sodium hydroxide, kerosene, strips of aluminium foil and nails. Reilly also received a text message of encouragement moments before leaving his Plymouth home on the failed suicide mission, sources said.

Police are hunting others they believe persuaded easily-influenced Reilly to attempt the suicide bombing.

Sources close to the inquiry said the bomb was a fireball-type device that was extremely volatile and may have been detonated by shaking. Detectives are investigating whether the backroom restaurant toilet was the intended place for detonation.

It also emerged Reilly travelled on a bus with 54 passengers to the restaurant in Exeter's £230 million Princesshay shopping centre at around 12.50pm. The 22-year-old was arrested at the scene after police found him staggering outside with serious facial injuries and burns.

Reilly, who recently converted to Islam, had a low IQ, a diagnosed mental illness and had been in and out of residential treatment. Counter terrorist police already suspected Reilly had forged loose links to known Islamic extremists in south west England.