“The intelligence we had received left us in no doubt these men were going to be killed,” one senior military source told The Times yesterday.

Monday’s events caused deep concern within the Government yesterday. John Reid, the Defence Secretary, raised the prospect that Iraqi police seized the two special forces soldiers in collusion with the Mahdi Army, a banned militia loyal to the Shia firebrand Moqtada al-Sadr. The behaviour of the Iraqi police was worrying and not yet understood, he said.

Fears that hardline Islamic militia are tightening their grip on southern Iraq, with the connivance of Iraqi police, put Tony Blair under pressure to outline an exit strategy for the 8,500 British forces in Iraq.

Michael Howard, the Tory leader, said that the Government needed to set out an honest account of the difficulties it faced in Iraq. “If the Iraqi police are not doing their job properly and if, as appears to have been the case yesterday, they are colluding with extremist militants against British soldiers, that is a cause for very deep concern,” he told the BBC.

“If, as has been suggested, the Iraqi police has been systematically infiltrated in this way, then we need, perhaps, to set about building a different kind of police force.”

Charles Kennedy, the Liberal Democrat leader, said that the events in Basra confirmed his fears that Iraq was drifting towards civil war. He said: “The most worrying thing of all is if we are now seeing a breakdown in communication, trust and co-operation between the British forces, who have done a heroic job there under the most dreadful of circumstances, and aspects at least of the Iraqi domestic security forces.”

The developments in Basra were discussed at a meeting of the Cabinet, which reaffirmed the existing strategy that the British presence can be run down only when Iraqi security forces believe they have sufficient control. But Mr Blair’s hopes that he could use next week’s Labour Party conference to direct attention back to the domestic agenda look set to be thwarted yet again.

The two undercover soldiers were apparently captured and taken to the police station after exchanging fire with Iraqi police. An angry mob attacked a British unit sent to rescue them, setting fire to two Warrior armoured fighting vehicles. Late on Monday a much bigger force stormed the station and grabbed the soldiers from a neighbouring villa.

The British action angered the Iraqi authorities. Muhammad al-Waili, the Governor of Basra province, called it barbaric, savage and irresponsible. A spokesman for Ibrahim al-Jaafari, the Iraqi Prime Minister, called it a “very unfortunate development”.

Iraqi television fuelled that anger by broadcasting pictures of the two soldiers inside the station as the police inspected wigs, Arab headdresses, an anti-tank missile and communications equipment allegedly seized from the soldiers’ car.

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