MI5 could have identified one of the July 7 bombers four months before the attacks on London had it acted upon new intelligence.
A senior spy, giving evidence at the inquest into the bombing of London's transport system in 2005, said that because of national security reasons he cannot reveal why the security services chose not to pursue the new information. The explosions killed 52 people.
MI5 officers had already observed Mohammed Sidique Khan and Shehzad Tanweer meeting with known terror suspects in Crawley in 2004, but labelled the pair "small-time fraudsters" who were not connected to terrorism.
The court also heard yesterday that in 2003 Khan was dismissed as a "jihadi tourist" by MI5 officers when he travelled to Pakistan to attend a terrorist training camp.
Then, in March 2005, someone told the agency that a man from Yorkshire, named "Saddique", but whose surname was not Khan, had trained in an extremist camp in Afghanistan in the late 1990s and early 2000s.
MI5 did not follow this lead. The senior officer, who was identified at the hearing as Witness G, said there were "good operational reasons" for not pursuing the line of enquiry. But he acknowledged that if they had done so, they would have established that "Saddique" was Mohammed Sidique Khan.
Hugo Keith QC said: "You could have found out who Saddique, surname not Khan, was - but for good reason, no steps were taken in that direction." Witness G replied: "I have a high degree of confidence that we could have done."
Keith continued: "If this person had been identified as Mohammed Sidique Khan and he had come under intensive investigation ... then there would have been a greater chance that whatever he was plotting then - and we know he had started plotting by February or March 2005 - might have come to light."
Witness G answered: "Yes, a greater chance. I would say a high degree of intrusive investigative measures would have been required to uncover the plot from what we know of it now."
Earlier in the day, Witness G explained how Khan was dismissed as a "jihadi tourist" when he was observed meeting with Omar Khyam, the fertiliser-bomb plotter who was convicted in May 2007.
Al-Qaeda supergrass Mohammed Junaid Babar told the FBI he met Khyam and two others, known to him as "Ibrahim" and "Zubair", at an airport in Pakistan. But he was only able to identify Ibrahim as Khan after the attacks.
This information "didn't appear all that significant", Witness G said. "It would have been seen as a social gathering ... of those who are like-minded."