EXTRA checks to link July 7 ringleader Mohammed Sidique Khan to terrorism did not take place because of limited resources, a report said today.
Investigators did not dig further into his background despite watching him meet extremist plotters because they believed he did not pose a direct threat, the Intelligence and Security Committee (ISC) said.
In a long-awaited second report into the July 7 2005 attacks in London, MPs said they "cannot criticise" decisions made by MI5 and police in the months before the atrocities.
But they branded the fact that MI5 could only provide "reasonable" surveillance coverage of about one in 20 terror suspects in 2004 as "astounding".
And they revealed that MI5 chiefs admitted they can do more to improve how potentially vital information on suspects is stored so it can be retrieved more easily.
The committee concluded: "Having taken everything into account and having looked at all the evidence in considerable detail, we cannot criticise the judgments made by MI5 and the police based on the information that they had and their priorities at the time.
"Even considering material that was discovered after 7/7, and that which arose from the Crevice trial, we believe that the decisions made in 2004 and 2005 were understandable and reasonable."
The heavily-censored 100-page report will leave the Government open to claims of a whitewash by campaigners calling for a full public inquiry.
They want an independent investigation into what the Security Service and police did and did not know in the run-up to the 2005 London attacks that left 52 innocent people dead.
The report was finally published today after three men were acquitted of helping the four bombers prepare for their attacks on three Tube trains and a bus.
In a previous report published in 2006, the ISC revealed that bombers Shehzad Tanweer and Khan were known to MI5 but were not investigated.
The report said that, given the amount of information held on Khan, it was "nevertheless surprising'' that they did not identify him prior to July 7.
But MPs added that they were satisfied about the reasons why MI5 did not divert resources from other alleged terror plots to the suspected "small-time fraudster".
The report detailed six contacts recorded by MI5 and police with Khan between 1993, when he was arrested for assault, and January 2005, when police linked a hire car to a terror investigation.
It added that there were 10 clusters of secure emails exchanged between MI5 and West Yorkshire Police referring to an individual now believed to be Khan.
MPs said Khan was one of 40 men photographed by West Yorkshire Police in 2001 during a training camp, but he was not identified until several years later.
The report also outlined several contacts observed by surveillance teams between Khan and Tanweer with Omar Khyam, the leader of the fertiliser bomb plot.
The two July 7 bombers were watched as they met Khyam in February and March 2004, but analysts decided they were not planning an attack and were involved in financial fraud.
They were also followed home, but the report said this was simply "housing" the men - identifying an address for them - so they could be traced if further inquiries were necessary.
The committee said there was nothing to single out these meetings and phone calls as particularly significant at the time and no mistakes were made.
The report highlighted how MI5 was swamped with leads relating to Khyam, including more than 4,000 telephone contacts and 1,154 links to vehicles.
The report found the various spellings of Khan’s name may have hindered the police and MI5 as they tried to join up all the different fragments of information they had.
But it added: "MI5 have said that even if ’S. Khan’ had been discovered to be the same individual appearing on each occasion, there was still nothing to indicate that he was involved in a plot to carry out terrorist attacks and therefore they would not have done any more to investigate him, given what else was going on at the time."
The committee said Khan and Tanweer were categorised as ``desirable'' targets by MI5 after they were overheard discussing fraud and travel to Pakistan.
Their report highlighted how in 2004, MI5’s coverage of more than 60% of targets was described as "inadequate" or "none" and that 54 "essential" targets had no coverage at all.
The committee said the "astounding figures" make it "possible to understand the difficulty if the decisions that MI5 had to make at the time".
Members said resources were so stretched agents could not even assess whether "desirable" targets should be examined in more detail unless they were known to be plotting an attack.
They said: "They had to prioritise even within this essential group. Therefore a ’desirable’ target did not even get close to attracting a share of the limited resources available."
The committee said MI5 would need an unachievable "several hundred thousand officers" to provide comprehensive intelligence coverage. It currently employs 3,500.
The report said MI5 bosses have reviewed the way they operate in the wake of the July 7 attacks and improved tactics to deploy resources during operations.
MPs concluded that a review of information collected during the fertiliser plot inquiry would not have prevented the July 2005 atrocities.
They added: "It could be argued that fresh checks could have been carried out during this time, and that this might have made a difference.
"But, as we have described earlier, these would not have been possible in law or justified in terms of resources, based on how much of a threat Khan and Tanweer appeared to present."
An annex to the report added in recent months revealed that MI5 and MI6 contacted the committee at the end of last year to reveal that another man may have been involved in the July 7 attacks.
MPs said the suspect was linked to another terror suspect and several extremist groups and may have worked as a "facilitator" for Khan and Tanweer.
The censored report revealed that the individual had personal links to the two bombers and was not another man previously accused of links and named in the media as Haroon Rashid.
It stated: "We have previously explained in the review that such fragmentary intelligence cannot provide the complete picture and cannot be completely verified.
"There is (at this stage at least) no evidential link."
The report added: "Despite this development, which we have included here for completeness, there remains no specific confirmed intelligence that there was a fifth bomber or a ’mastermind’ involved in the attacks of July 7, 2005.
"The agencies do, however, assess (i.e. they do not know for certain, but judge it likely) that the bombers were directed in some way by elements of al Qaida based overseas."
The report highlighted several surveillance photographs, some released for the first time, which were taken of groups of men including Khan on a training camp in 2001 and at a service station in 2004.
The committee said the failure to show one of the photographs to a terrorist informant in prison was not a "missed opportunity" because it was of such poor quality.
The report found that, although the police have stopped 12 terror plots since 2000, there can be no guarantee that the events of July 2005 will never be repeated.
MPs said a figure of 2,000 terrorist targets recently given by the head of MI5 is "not scaremongering" and that "a great deal more people" pose a threat to Britain.
They said: "What our agencies can do is to build an intelligence network that gives them as much information as possible and then try and stop those that it comes across, which is what they have been doing.
"But we must be realistic. Despite the increased efforts of the agencies, and the increased resources at their disposal, the odds are stacked against them.
"The attacks of July 7, 2005, together with the attacks of July 21, 2005, and the attempted attack on London and Glasgow Airport in summer 2007 demonstrate there will always be gaps in intelligence coverage.
"It is an uncomfortable truth that, at some time in the future, and without any prior warning, it is very possible the UK will be the subject of another terrorist attack."
The committee's chairman, Kim Howells, said the blame for not stopping the attack could not be laid at the door of MI5.
The agency did not investigate Khan further because it had no evidence that he was planning a terror attack.
To follow people like him would have diverted resources from other important investigations, he said.
To extend the Security Service’s operational capacity to the point where it would have included Khan would have required "hundreds of thousands" of agents.
"If you want complete coverage you are going to have hundreds of thousands of security and intelligence officers and that’s not the society we live in and, from what I hear from public debate, that’s not what the public want either."
He added: "If they had diverted resources, who is to say that the 12 operations that were prevented by surveillance and intelligence would still have been prevented.
"Hindsight is a wonderful thing. Those judgments were made at the time and, having gone in detail through all of the details, we cannot find any reason to criticise the actions that were taken at the time."
He said he hoped the report would stop "speculation" and "conspiracy theories" which had caused distress to the families of those who died.
"There will inevitably be those who do not like what we have written, who will criticise the report because it does not say what they want it to say, but we cannot alter the facts to suit the story."
He said the committee was critical of the fact that information was only shared between Special Branch and MI5 on a "need to know" basis.
There should have been a "more complete dialogue" between them, but the situation had improved "immeasurably" since the attacks.
Labour MP George Howarth said he hoped survivors and the relatives of victims would take "some comfort" from the investigation.
He said: "I just hope that the families will read all the detail and take some comfort from the fact that we have not left any stone unturned."