Correspondence was published showing that Sir Michael Jay, head of the Foreign and Commonwealth Office, gave warning a year earlier that Britain’s foreign policy was a key factor in recruitment by extremist organisations.

He cited disillusion among Muslims over Britain’s position on Iraq and the Middle East peace process as a “recurring theme” in the Muslim community.

Sir Michael’s warning was set out in a letter in May last year to Sir Andrew Turnbull, the outgoing Cabinet Secretary, in which he said Britain was now being seen among Muslims as a “crusader state” alongside America.

A copy was published yesterday by The Observer, which said that his references to Iraq were removed from core scripts, or briefing papers, circulated to Ministers summarising the Government’s position on Iraq and terrorism.

Despite Sir Michael’s warning, Mr Blair and Jack Straw, the Foreign Secretary, initially tried to quash any connection between Iraq and the suicide bomb attacks in London on July 7 and bungled copycat attacks a fortnight later.

Liam Fox, the Shadow Foreign Secretary, said the disclosure undermined the Government’s position.

“It’s simply not sensible . . . for the Government to say there is no link whatsoever between what is happening in Iraq and what is happening in terms of recruiting extremists,” Dr Fox told the BBC.

“Most people with common sense would say there is probably some link in terms of making it easier to recruit extremists from the Muslim community.”

This was echoed by Sir Menzies Campbell, the Liberal Democrats’ Foreign Affairs spokesman. “When a figure of such experience and authority as Michael Jay highlights the relationship between our foreign policy and disaffection among Muslims, the immediate question for the Government must be what weight did they attach to his advice and what was their response?”

Sir Menzies said. “The Government, and the Prime Minister in particular, have sought consistently to deny any connection between our foreign policy and the terrorist threat.

“Sir Michael’s perceptive analysis undermines that position substantially. The continuing political and constitutional crisis in Iraq offers no antidote to Michael Jay’s prescription.”

In his letter Sir Michael did not refer specifically to terrorism, speaking instead of the underlying causes of “extremism” such as discrimination, disadvantage and exclusion.

He wrote: “But another recurring theme is the issue of British foreign policy, especially in the context of the Middle East peace process and Iraq.”

The experience of both Foreign Office officials and ministers suggested British foreign policy was perceived as having a negative effect on Muslims globally and “creating a feeling of anger and impotence among especially the younger generation of British Muslims”.

Sir Michael added: “This seems to be a key driver behind recruitment by extremist organisations [eg recruitment drives by groups such as Hizb-ut-Tahrir and al-Muhajiroon].”

There were no signs of any moderation in this resentment, despite government claims of progress in Iraq’s reconstruction, and the Government’s work on engaging with Islam “has therefore been knocked back”, he said.

He spoke of the role that the Foreign Office should play in wider attempts by the Government to engage with young British Muslims and convince them they “have a credible and legitimate voice, including on foreign policy issues, through an active participation in the democratic process”.

His letter carries a similar warning to an analysis by MI5 published on its website after the London bombings which concluded that “Iraq is a dominant issue for a range of extremist groups and indivuduals in the UK and Europe”.

Explore UK News

• Crime News

• Education News

• Health News

• Science News

• Scotland News

Times Recommends

• TV bidding war starts over Olympics
• Sofas were larger than life in TV adverts
• Driver pays fine with wheelbarrow of pennies