The caravan was discovered 11 days ago in a semi-rural suburb on the outskirts of Sydney and contained “written notes” listing “Jewish entities”, police said.
“Our investigation is looking at whether the caravan and its contents are acts in preparation for a terrorism event,” New South Wales police commissioner Karen Webb told reporters.
Police found industrial “Powergel” mining explosives inside the caravan although said there was no detonator inside.
They said the combined force of the explosives could have created a 40m (130-foot) blast zone.
“The caravan was located and it did have explosives in it, and it did have written notes with Jewish entities nominated on them,” deputy commissioner David Hudson said.
“That’s put it into the terrorism space.”
But, the matter has not been declared a “terrorist incident”, a designation that would give police additional powers and resources if needed.
The caravan’s owner was in police custody on Thursday on unrelated charges, while two others were arrested “on the periphery” of the investigation, police said.
Australian Prime Minister Anthony Albanese said it appeared to be a plot “designed to create fear in the community”.
‘Epidemic of anti-Semitism’
The veil of secrecy was necessary while detectives carried out clandestine investigations, police said.
State premier Chris Minns said it was a “potential mass casualty event”.
“This would strike terror into the community, particularly the Jewish community,” he told reporters on Wednesday evening.
The state Jewish Board of Deputies said it was a “matter of the gravest possible consequence”.
A wave of anti-Semitic fire-bombings, graffiti and vandalism has swept through Melbourne and Sydney in recent months, piling pressure on the Australian government.
Anti-Jewish slogans such as “Jews are real terrorists” were found on the walls of a Jewish school in eastern Sydney on Thursday morning.
As the alleged caravan plot first came to light, Israeli foreign minister Gideon Saar said Australia must “do more to stop this disease”.
“The epidemic of antisemitism is spreading in Australia almost unchecked,” he wrote on social media.
Israeli Prime Minister Benjamin Netanyahu accused the Australian government of stoking “anti-Israel sentiment” after a synagogue was firebombed in December.
Netanyahu said it was “impossible to separate” the attack from what he described as Australia’s “anti-Israeli” diplomatic stance.
Canberra, last month, backed a UN general assembly resolution which demanded the end of Israel’s “unlawful presence in the occupied Palestinian territory”.
Australian foreign minister Penny Wong has also suggested Canberra could one day recognise a Palestinian state.
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