Another safe way of putting it is:
mentally challenged

As in physically challenged.

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Note added at 16 mins (2005-06-27 06:03:17 GMT)
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From the following link, it appears that there is nothing wrong in using \"mentally retarded\". It seems to be a standard psychiatric term.

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The three traditional terms denoting varying degrees of mental deficiency long predate psychiatry. They were originally used in English as simple forms of abuse, and this is still the main usage. Their now obsolete use as psychiatric technical definitions is of purely historical interest. There have been some efforts made among mental health professionals to discourage use of these terms. Note that the term retard or tard is still used as a generic insult, especially among children.

Idiot indicated the greatest degree of mental deficiency, where the mental age is 2 years or less, and the person cannot guard himself against common physical dangers. The term was gradually replaced by the term profound mental retardation.
Imbecile indicated a mental deficiency less extreme than idiocy and not necessarily inherited. It is now usually subdivided into two categories, known as severe mental retardation and moderate mental retardation.
Moron was defined by the American Association for the Study of the Feeble-Minded in 1910, following work by Henry H. Goddard, as the term for an adult with a mental age between eight and twelve; mild mental retardation is now the term for this condition. Alternative definitions of these terms based on IQ were also used.

http://www.answers.com/mentally retarded

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Note added at 35 mins (2005-06-27 06:22:24 GMT)
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developmentally delayed and mentally retarded are synonyms according to this site:

Healthopedia.com - Mental Retardation (Developmentally Delayed ...
Mental Retardation. Alternate Names : Developmentally Delayed, Mentally Disabled.
Overview, Causes, & Risk Factors | Symptoms & Signs | Diagnosis & Tests ...
www.healthopedia.com/mental-retardation/

(no, not developmentally delayed)

Mentally retarded is always used for mentally handicapped children as well as adults and it is normally incurable. But delayed in development such as delayed in cognitive abilities can be removed. using one of them depends on the text. Today psychologist prefer the next term, of course.

because of the excited responses to my comments - I now have to justify my comments - all because the asker has not properly formulated a question which explains the target audience and target country.
there are nuances - I am aware of it -

Caremark.com
Mental retardation is a developmental disability that first appears in children under the age ... The Diagnostic and Statistical Manual of Mental Disorders, ...
www.caremark.com/.../5522/.cmd/ad/.pm/-/.c/ 1703/.ce/5535/.p/3711/_s.155/5522?PC_3711_docid=CMS-2-MM000878 - 53k

DSM IVTR includes mental retardedness as one of the abnormal behaviours

WHAT IS MENTAL RETARDATION?
Definition
The DSM-1V2 defines mental retardation as follows:


Significantly subaverage intellectual functioning-ie, an IQ of approximately 70 or below.

Deficits or impairments in adaptive functioning.

Onset before age 18 years.



mental retardation
n.
Subnormal intellectual development as a result of congenital causes, brain injury, or disease and characterized by any of various cognitive deficiencies, including impaired learning, social, and vocational ability. Also called ****mental deficiency****.
http://www.answers.com/topic/mental-retardation


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Note added at 15 hrs 0 min (2005-06-27 20:47:16 GMT)
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Diagnostic and Statistical Manual of Mental Disorders - Fourth Edition (DSM-IV), published by the American Psychiatric Association, Washington D.C., 1994, the main diagnostic reference of Mental Health professionals in the United States of America.
Diagnostic and Statistical Manual of Mental Disorders - Fourth Edition (DSM-IV), published by the American Psychiatric Association, Washington D.C., 1994, the main diagnostic reference of Mental Health professionals in the United States of America.
http://www.psychologynet.org/dsm.html
Diagnostic and Statistical Manual
of Mental Disorders (DSM)IV

Fourth Edition
The standard diagnostic tool used by mental health professionals worldwide to promote reliable research, accurate diagnosis, and thus appropriate treatment and patient care. Each psychiatric disorder with its corresponding diagnostic code is accompanied by a set of diagnostic criteria and descriptive details including associated features, prevalence, familial patterns, age-, culture-, and gender-specific features, and differential diagnosis.
http://www.psychiatryonline.com/dsmLibrary.aspx

This is the term that I would use.

Terminology is very important to people trying to change perceptions. Ward is a national leader of "self-advocacy," a term adopted to reflect the desire of people with a variety of disabilities to have their voices heard in decisions affecting their lives. Self-advocates don't like any labels but prefer "developmentally disabled" over "mentally retarded," which they view as pejorative.
http://www.villagelife.org/news/archives/11-4-97_disabledfig...

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Note added at 18 hrs 32 mins (2005-06-28 00:19:39 GMT)
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Bala, I don\'t present the following stats as proof positive, I merely present them to show you that the term that I\'ve proposed fits just fine. I think that you\'re reading too much into a term which is very commonly used in the US (your personal feelings on the matter notwithstanding).

Results 1 - 10 of about 237,000 for \"mentally challenged\".

Results 1 - 10 of about 605,000 for \"developmentally disabled\".