Britain's security status was downgraded less than a month before the London bombings because the security services were confident that there was no-one in Britain capable of carrying out a terror attack, it emerged today.

Details have been published of the threat-assessment memo, which was circulated in June, three weeks before the tube and bus bombings that claimed 56 lives.

The memo, which will be highly embarrassing to the Government, said that there was no imminent threat of attack. "At present there is not a group with both the current intent and the capability to attack the UK," it said, according to a leaked copy obtained by The New York Times.

In a further embarrassment, the assessment also clearly states that the Iraq war had made Britain more vulnerable to terrorists - something the Government angrily denies.

The pronouncement from the Joint Terrorism Analysis Centre (JTAC), which comprises 100 of the most senior MI5, military and Scotland Yard counter-terror specialists, prompted the Government to lower its threat assessment one level, from "severe general" to "substantial".

"Substantial" is the fourth most serious threat level on a scale of one to seven, rating the likelihood of Islamic terrorism only one level higher than the "moderate" threat from the IRA. This compares with "critical," the highest level of alert, which means that an attack is expected within two weeks, down to "negligible," the seventh and lowest level.

The JTAC report was presented to the Joint Intelligence Committee (JIC) last month, and circulated to Scotland Yard, hospitals, Government departments, foreign Governments and multinational corporations.

The bald fact that the threat level had been reduced was widely reported after the bombings, and Charles Clarke, the Home Secretary, has already been forced to acknowledge that the decision was wrong.

But details of the memo had not been seen until it was leaked to The New York Times, which published excerpts today - the first time that the background to the decision has been disclosed. The leak is expected to add to mounting pressure for an inquiry into Britain's handling of security intelligence. Today, Government officials attempted to minimise the fallout by claiming that the decision had no practical impact on counter-terrorism measures.

The report concludes that there was no sign of an imminent attack, although it does say that a general threat existed from both the international al-Qaeda network and from homegrown radicals acting independently.

The threat from al Qaeda's "leadership-directed plots has not gone away," it said. Despite that threat and the situation in Iraq, it added, "many of our current concerns focus on the wide range and large number of extremist networks and individuals in the UK and individuals and groups that are inspired by but only loosely affiliated to AQ (al-Qaeda) or are entirely autonomous.

"Some of these have the potential to plan UK attacks, and it is also possible that lone extremists or small groups could attempt lower-level attacks."

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