The US intelligence chief, John Negroponte, last night acknowledged that the war in Iraq was crafting a new generation of terrorists but insisted that America was safer from attack than it had been in 2001.

The National Intelligence Director, who oversees America's 16 intelligence agencies and reports directly to President Bush, was responding to a classified report, approved by him and leaked to The New York Times on Saturday, which said that global terrorism had worsened since the invasion of Iraq in 2003.

"We are certainly more vigilant. We are better prepared," Mr Negroponte told an audience at Washington’s Woodrow Wilson Centre last night. "We are safer. The threat to the homeland itself has, if anything, been reduced since 9/11."

Mr Negroponte was careful to limit his assurances to the state of American security. Elsewhere he acknowledged the concerns of intelligence analysts that "the Iraq jihad is shaping a new generation of terrorist leaders and operatives".

But he also criticised what he considered a selective description of the report, a National Intelligence Estimate two years in the making that was compiled from reports from all of America's spying agencies. Mr Negroponte said that the report dealt with terrorism as a whole and not just the radicalising effect of the war in Iraq.

The controversy surrounding the intelligence estimate has prompted senior Democrats and Republicans to demand that it be declassified so that the public can read the whole thing. Yesterday Senator Pat Roberts, the top Republican on the Senate Intelligence Committee, said the report should be made public.

According to The New York Times, the report, entitled Trends in Global Terrorism: Implications for the United States, avoided making specific judgments about the risk of another attack on American soil but concluded that "the Iraq war has made the overall terrorism problem worse".

Mr Negroponte's remarks came at the end of a long day of criticism for the Bush Administration, which is eager to regain its authority over the issue of national security in the run-up to November's mid-term congressional elections.

Earlier, it was revealed that Donald Rumsfeld, the US Defence Secretary, was facing a new challenge, after the US Army’s Chief of Staff refused to submit a budget plan for 2008 in protest at the demands the Pentagon is placing on America’s overstretched military.

General Peter Schoomaker argued that the service requires either a much bigger budget than the Administration has proposed, or relief from some of its worldwide commitments.

The Los Angeles Times reported yesterday that General Schoomaker was seeking $138.8 billion (£72.5 billion) for 2008, or nearly $25 billion more than the limit originally set by Mr Rumsfeld. The Army’s budget this year is $98 billion.

General Schoomaker's unusual move coincided with another round of complaints from a group of ex-Generals, who have already called for Mr Rumsfeld to quit after six years as Defence Secretary.

Yesterday three retired military generals bluntly accused Mr Rumsfeld of bungling the war in Iraq, saying that US troops were sent to fight without the best equipment, and that critical facts were hidden from the public. "I believe that Secretary Rumsfeld and others in the Administration did not tell the American people the truth for fear of losing support for the war in Iraq," retired Major General John Batiste said.

It is rare for retired military officers to criticise the Pentagon while military operations are under way, particularly at a public event likely to draw widespread media attention.

A second military leader, retired Major General Paul Eaton, assessed Mr Rumsfeld as "incompetent strategically, operationally and tactically". "Mr Rumsfeld and his immediate team must be replaced or we will see two more years of extraordinarily bad decision-making," he said.

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