The head of MI5, Dame Eliza Manningham-Buller, confessed after the attacks — which killed 52 Tube and bus passengers — that they had been unexpected and had come as a surprise to her.

Dame Eliza’s admission that suicide bombs were unlikely “to be the norm” has shocked other counter-terrorist agencies.

The Times is aware that the threat of young British Muslims, radicalised by extremist preachers and groomed by hardcore activists, perpetrating a suicide attack was at the forefront of police contingency plans for a terrorist attack several months before 7/7.

The ISC said that it was concerned that MI5 had reached such mistaken conclusions.

Britain, the ICS said, had produced a series of Islamist terrorists prepared to carry out suicide missions, including Richard Reid, the shoe bomber, and Omar Sharif and Asif Hanif, who attacked a Tel Aviv bar.

It was a matter of concern that MI5 had, therefore, judged that a suicide attack was unlikely.

The ISC report said: “This judgment could have had an impact on the alertness of the authorities to the kind of threat they were facing and their ability to respond.”

Its report added: “We remain concerned that across the whole of the counter-terrorism community the development of the home-grown threat and the radicalisation of British citizens were not fully understood or applied to strategic thinking.”

The report also revealed that Khan came to the attention of MI5 agents five times between 2003 and 2005 but had never been pursued as a serious suspect. Khan, 30, was no sudden convert to terrorism. The signs of growing extremism had been missed by everyone.

He had been to Afghanistan in the late 1990s and to Pakistan on two occasions, in 2003 and 2004, when he is believed to have met al-Qaeda figures.

Detainees interned in Guantanamo Bay spoke in early 2004 of “men from the UK, known only by pseudonyms, who had travelled to Pakistan in 2003 and sought meetings with al-Qaeda figures”. MI5 never found out who “the men” were. However, after July 7, a detainee recognised Khan from a press photograph and told MI5 that he was one of the men who had gone to Pakistan.

MI5 also had in its possession a photograph of Khan taken in 2004 by a team of “watchers” during a surveillance operation against suspected terrorists. The picture showed a figure, at that stage unidentified, having meetings with suspected terrorists who were allegedly plotting an attack in the United Kingdom.

The parliamentary committee said that the photograph was circulated to foreign intelligence services and “foreign detaining authorities” to try to put a name to the face, but they drew a blank.

The detainee who recognised Khan from the press picture after July 7 was never shown the photograph, MI5 admitted to the committee. “Had it been, and had the detainee been able to identify Khan . . . it is possible that the Security Service (MI5) might have allocated more effort to identifying and investigating him prior to July,” the ISC report said.

One of the other bombers, Shehzad Tanweer, had also appeared as an unidentified figure among a group of men who had held meetings with the terrorist suspects in 2004, and had gone to Pakistan with Khan. After July 7, MI5 had found a telephone number in its records which turned out to belong to Jermaine Lindsay, another member of the suicide group.

Lack of resources meant that MI5 was unable to devote any time to watching Khan or Tanweer, who were not considerd “essential” targets. When extra money was made available, MI5 began to check on the unidentified figures at the meetings in 2004, but only “limited additional attempts were made to identify the men”.

Security sources said last night that the ISC report had validated the decisions taken by MI5, but had also spelt out the “enormous and relentless” terrorist threat facing Britain. “Difficult decisions had to be taken and even if our resources were doubled, we would still need to prioritise,” the sources said.

They said that three terrorist plots had been prevented since July 7, but there was a risk that another terror group would “get through the net”. The ISC report was “sober reading”.

Earlier, Paul Murphy, MP, chairman of the committee, said that one of the most worrying lessons learnt from July 7 was that there were people “hatching plots in our great cities” and making bombs to kill their fellow citizens.

However, the committee was adamant that MI5 and the other secret agencies were neither negligent nor blameworthy for failing to stop the four bombers.

The report said: “We have been told in evidence that none of the individuals involved in the July 7 group had been identified (that is, named and listed) as potential terrorist threats prior to July. We have also been told that there was no warning from intelligence (including foreign intelligence) of the plans to attack the London transport network on July 7.”

But it added: “It is possible that the chances of identifying attack planning and of preventing the July 7 attacks might have been greater had different investigative decisions been taken in 2003-05.”

In the light of the other pressures facing MI5, the decisions not to give greater priority to investigating Khan and Tanweer were “understandable”.

Mr Murphy said that the committee’s instinct, after reading all the secret material, was that the four bombers were acting without al-Qaeda control.

ANALYSIS AND JUDGMENT

WHAT WAS KNOWN?

MI5 came across Khan and Tanweer “on the peripheries of other surveillance and investigative operations” but there were “more pressing priorities at the time.

“The chances of identifying attack planning and of preventing the July 7 attacks might have been greater had different investigative decisions been taken by the Security Service in 2003-05”

THREAT AND ALERT SYSTEMS

The Intelligence and Security Committee said it was “not unreasonable” to lower the threat level from severe general to substantial in May 2005. But it “questioned the usefulness of a system in which changes can be made to threat levels with little or no practical effect”

ASSESSING THE THREAT

The Joint Intelligence Committee judged in March 2005 that suicide attacks “would not become the norm in Europe . . . We are concerned that this judgment could have had an impact on the alertness of the authorities”

RESOURCES & CO-OPERATION

The ISC said: “More needs to be done to improve the way that the Security Service and Special Branches come together in a combined and coherent way to tackle the ‘home-grown’ threat.”

It added: “If more resouces had been in place sooner the chances of preventing the July attacks could have increased.”

It concluded: “If we seek greater reassurance against the possibility of attacks some increase in intrusive activity by the UK’s intelligence and security agencies is the inevitable consequence. Even then it seems highly unlikely that it will be possible to stop all attacks”