UK Intelligence focused on Irish extremists and allowed individuals in London to foment terror in the Middle East, believing that they were no threat to Britain, the report from Chatham House and the Economic and Social Research Council (ESRC) said. British lives have also been lost because UK foreign policy was seen as “riding pillion” with the United States, according to the report, part of a five-year research programme which was near completion by the time of the London bombings.

It concluded that the war in Iraq split the international community’s response to terror while providing a recruitment, fundraising and propaganda tool for al-Qaeda. The report seemed to give support to the claims of Clare Short, the former International Development Secretary, and others that the war in Iraq was partly to blame for the London bombings.

But Downing Street rejected the findings, saying that the report gave no alternative strategy to the War on Terror. The expert analysis of the response to 9/11 by Chatham House and the ESRC concluded that Britain has “an impressive national structure of co-ordination to deal with terrorism” but that the challenge remained “significant”. The report said that British Armed Forces and police gained “invaluable experience and expertise” through three decades of fighting Northern Ireland terrorism.

But it added: “It is hardly surprising that this understandable preoccupation with terrorism related to Northern Ireland diverted the attention of Britain’s intelligence agencies away from international terrorism.”

The report said: “By the mid-1990s the UK’s intelligence agencies and the police were well aware that London was increasingly being used as a base by individuals involved in promoting, funding and planning terrorism in the Middle East and elsewhere.

“However, these individuals were not viewed as a threat to the UK’s national security, and so they were left to continue their activities with relative impunity, a policy which caused much anger among the foreign governments concerned.

“As a result the British authorities did not fully appreciate the threat from al-Qaeda. The failure to gain any warning from existing information of the 9/11 attacks on the US was an intelligence failure of the entire Western alliance.”

The report analysed the four principles of Britain’s response to the international terrorist threat — prevention, pursuit, protection and preparedness.

It concluded: “A key problem with regard to implementing prevention and pursuit is that the UK Government has been conducting counter-terrorism policy ‘shoulder to shoulder’ with the US, not in the sense of being an equal decision-maker, but rather as pillion passenger compelled to leave the steering to the ally in the driving seat.

“There is no doubt that the situation over Iraq has imposed particular difficulties for the UK.”

A Downing Street spokesman said: “We [work] with international partners because it requires an international response. We work with the Americans because they are our closest allies and we work with them as full and equal partners. We judge it to be in the best interests of Britain, the best interests of the world and the best interests of the people of Afghanistan and Iraq.”

• Lord Falconer last night said that new anti-terror measures would be speeded through if opposition parties agreed. The proposals had not been due to become law until next spring.He told Westminster Hour on BBC Radio 4 that a new time-table would be “a question for discussion”. He said: “If the opposition parties and the police can reach a consensus with us then we can do it very quickly.”

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