There are many ways to explode a cat. We describe one method, which may contain elements of the method that was actually used.

The explosive was almost certainly in a compartment layer integral to the lithium polymer battery. See Laptop Bombs on Planes, Conclusion. Quoting,

The sealed laptop, tablet, and phone make reliable inspection impossible with current technology. It is impossible because the battery is a big gob of organic chemicals markedly different from the other materials of the device, but not so different from a bomb.

A  lithium polymer battery in a consumer device has three connections. Two of these are the plus  (red) and  minus (black) terminals,  used to power the device, and to charge the battery.

The third wire connects to a temperature sensor inside the battery. The sensor, known as a thermistor, has resistance that depends strongly on temperature.  The temperature of the battery is monitored to reduce the chance of a battery fire.

The sensor has two terminals, one attached to the third wire, the other connecting to the minus terminal of the battery. The thermistor is monitored by circuitry elsewhere in the pager, by applying a fixed voltage, and measuring the current. Buried in the battery, the thermistor is a barely visible dot in  x-ray view. The wires are even less visible.

All the house-keeping functions of the pager are controlled by an ASIC,  FPGA, or a microcontroller. High volume production, very low cost, the very small battery, simplicity of pager functions, and need for long standby time suggest an ASIC is used. Some ASICS contain an FPGA in the same die. Virtually all contain an EEPROM,  which contains simple code to customize pager functions.

This is important, because it makes the modification of the pager easy. Once programmed at the factory, the FPGA acquires specific functions that include control of inputs and outputs. The EEPROM code offers additional prospects for modification. One of these is the voltage applied to the thermistor inside the battery.

We make one more addition to the battery. In parallel with the thermistor, physically embedded in the thin compartment containing the plastic explosive, we place a  reverse biased zener diode, in series with a very fine wire, too small to be seen on an x-ray scanner. The wire might be coated with a thin layer of mercury fulminate.  The other end of the wire connects to the  negative terminal of the battery.

This is a very low power form of  exploding wire detonator. In normal operation the sense voltage applied to the thermistor is blocked from the wire by the zener diode. Upon receiving a code, the ASIC increases the sense voltage. When the voltage exceeds the zener diode rating, the diode will conduct, sending current to the wire. The wire then vaporizes. Boosted by the mercury fulminate or other primary explosive, this is enough to detonate the plastic explosive.

Such a sabotaged device could be assembled on a normal production line, by the substitution of two  indistinguishable parts, the ASIC and the battery. Normal inspection procedures cannot spot the mods.

A statement attributed to Israel is that they thought Hezbollah discovered this, implying that the timing of the pager explosions was not planned, but forced. This implies that  deniability may have been an original goal. One cutout, a Hungarian shell, has already been identified.

Depending upon the intended level of deniability, additional cutouts may have been employed. Malaysia and Indonesia are candidate locations, due to the long establishment of electronics assembly companies, and a lax security environment with roots in the Non-Aligned Movement, which had Sukarno as one of the founders.