The Northern Ireland secretary told the BBC that the police must bear down "very heavily" on those responsible.
Scotland Yard has received more than 100 complaints about the protest.
No protesters at the demonstration outside the Danish embassy - over the cartoons first printed in a Danish newspaper - were arrested on Friday, but specialist police officers were understood to have taken film and photographic evidence.
One protester, who dressed as a suicide bomber, has said he made "no apologies".
Speaking to the Daily Express newspaper, Omar Khayam, 22, from Bedford, said he wanted to highlight "double standards".
'Police investigating'
Mr Hain said it was worrying that demonstrators were "doing things and saying things that are completely unacceptable and intolerable".
Where there is evidence to back that up, then prosecutions will obviously follow
and the police are investigating that now
Peter Hain
"The police need to bear down on them very heavily and trace down those who have committed offences and prosecute them where they can get the evidence," he told BBC Radio 4's Today programme.
"There's freedom of speech on the one hand, that's sacrosanct, but on the other hand incitement to terror, incitement to suicide bombing, all of those are clear infringements of the law.
"Where there is evidence to back that up, then prosecutions will obviously follow and the police are investigating that now."
Shadow attorney general Dominic Grieve has questioned why no-one was arrested, while shadow home secretary David Davis called on police to take a "no tolerance" approach.
Labour MP Shahid Malik, who is on the Commons Home Affairs Select Committee, has called on Metropolitan Police chief Sir Ian Blair to make prosecutions.
The police's normal response in this is to put public safety first and then
to assess what offences may in addition have been committed separately
Lord Harris
Inayat Bunglawala, a spokesman for the Muslim Council of Britain, said there would be "no sympathy" among Muslims for those who waved offensive placards or banners.
But Lord Harris, a member of the Metropolitan Police Authority, said officers were putting public safety first.
"You have got to look at this in terms of managing a public order situation," he said.
"You have got to look at what is the best way of handling a demonstration to make sure it doesn't escalate into serious violence or get out of hand.
"And the police's normal response in this is to put public safety first and then to assess what offences may in addition have been committed separately."
A Met Police spokeswoman said: "We have stated that arrests if necessary will be made at the most appropriate time.
"This should not be seen as a sign of a lack of activity of the Met Police."
Mr Bunglawala said that Muslims would be in favour of arresting those who waved
offensive placards or banners.
He added: "Those extremists who were inciting violence were trying to hijack genuine feelings amongst Muslims for a more violent agenda.
"There will be no sympathy for them when they are charged by the police."
Elsewhere, on Monday one person was killed and four were wounded when hundreds clashed with police and soldiers during a demonstration in Afghanistan.
Over the weekend mobs in Syria and Lebanon torched the Danish embassies in Damascus and Beirut.
Among the cartoons which have sparked outcry among Muslims is one of Muhammad
with a bomb-shaped turban on his head. Newspapers in Spain, Italy, Germany and
France reprinted the material.
BBC News Monday, 6 February 2006
My comment
How comes that one had have 4 months necessary to come that the cartoons god blasphemies were, for which aims there anger and frustration against the Jews and the west and not against their own dictators and oppressors. He who reflects, the pattern, everything see in staged and directed and therefore absolute no spontaneous action or response, but an example of folks manipulation where many propaganda minister can learn of.
Just think about it and see for Yourselves that it is amazing how
world-wide at the same time people protest and are outrages, “spontaneously”
and that in most country’s an regressive and repressing regimes stand
by and let it happen.
