As such, the ICG says, the group is "unlikely to be interested in large, expensive operations that could further weaken its support base".
Sidney Jones, ICG's Southeast Asia project director, said instead the group may focus more on targeted killings, of police officers for example..
The report also said Indonesian authorities should pay greater attention to JI activities in Sumatra and Sulawesi.
The group may switch tactics and focus on police, prosecutors or government officers – considered legitimate targets – to avoid high Muslim casualties or jeopardising its recruitment drive, it said.
Indonesian and Western intelligence agencies believe JI was responsible for the 2002 and 2005 bombings on the resort island of Bali where more than 200 foreigners and locals were killed.
The 2002 Bali nightclub bombings were blamed on JI's then fugitive leader Noordin Mohammed Top, who is believed to have since left the group but remains Southeast Asia's most wanted man.
The ICG report said attacks in areas such as Poso in central Sulawesi, where violence has flared between Muslims and Christians, were important to JI members.
"Noordin's attempt to bomb the Australian embassy cost about $8,000. JI's assassination of the head of the Central Sulawesi Protestant Church cost $25," Jones said.
The report said a series of anti-terror raids by government forces has weakened the group, but left its structure intact, posing a major threat to the nation.
"The hundreds of arrests since the first Bali bombs may have disrupted the organisation less than originally assumed, although ideological differences over tactics and strategy are profound," the report said.
It warned the government to focus on potential recruitment grounds, particularly in Indonesia's prisons where convicted JI bombers are on death row and serving life sentences.