Mohammad Sidique Khan was spotted on four occasions in 2004 with at least one of the fertiliser bomb conspirators. At one point MI5 officers followed Khan back to his home in Leeds but no further action was taken.

In the wake of the convictions both the Conservatives and the Liberal Democrats have both called for an independent inquiry into the 7 July link.

The call for an inquiry was echoed by Graham Foulkes, whose son David died in the 7 July attacks. He said an inquiry was needed so "lessons could be learned".

Later, in the House of Commons, the Home Secretary, John Reid, ruled out an inquiry, saying it would divert the efforts of those in the security services who were so busy countering the terrorist threat.

But he said a committee of MPs would analyse the lessons learned from the fertiliser bomb plot trial.

The new director general of MI5, Jonathan Evans, issued a statement in which he denied being "complacent" and added: "The attack on 7 July in London was a terrible event. The sense of disappointment, felt across the service, at not being able to prevent the attack (despite our efforts to prevent all such atrocities) will always be with us."

He added: "The Security Service will never have the capacity to investigate everyone who appears on the periphery of every operation."

Britain's top anti-terrorist policeman, Deputy Assistant Commissioner Peter Clarke, said: "This was not a group of youthful idealists. They were trained, dedicated, ruthless terrorists who were obviously planning to carry out an attack against the British public."

Police smashed the plot in 2004 after MI5 had watched an Islamist extremist network with links across the world.

The link with 7 July was deliberately kept from the Old Bailey jury for fear of prejudicing their deliberations on the fertiliser bomb plot. The trial was one of the biggest and most expensive in British criminal history.

Al-Qaeda link

The fertiliser bomb plot investigation linked back to senior al-Qaeda figures in Pakistan and Afghanistan, including one who was detained by US forces in Iraq at the weekend.

Omar Khyam, 25, from Crawley, West Sussex, was found guilty of conspiring to cause explosions likely to endanger life between 1 January 2003 and 31 March 2004.

Also convicted were Waheed Mahmood, 34, and Jawad Akbar, 23, also of Crawley; Salahuddin Amin, 31, from Luton, Bedfordshire; Anthony Garcia, 24, of Barkingside, east London.

The judge told them: "You have betrayed this country that has given you every opportunity."

He also warned them: "All of you may never be released. It's not a foregone conclusion."

Two other men, Nabeel Hussain and Shujah Mahmood, were found not guilty.

The Old Bailey heard the plotters had come together over a number of years.

The men had started out sympathetic to Muslim causes around the world - but the key plotters decided that violence was the answer as they came together for secret military training camps in Pakistan.

Back in Britain, they discussed various schemes, including targeting the Bluewater shopping centre in Kent on a busy Saturday or the Ministry of Sound nightclub in central London.

They also talked of attacking the gas or electricity network and Prime Minister's Questions in Parliament.

Tip-off

The group had bought 600kg of ammonium nitrate from an agricultural merchants and kept it at a storage unit in Hanwell, west London.

This fertiliser was to be the key component in the massive bomb - similar to those used in other terrorism attacks around the world.

But unbeknown to the men, some of them were already on MI5's radar while, at the same time, staff at the storage unit tipped off police.

They replaced the ammonium nitrate with a harmless substance and kept the group under surveillance before swooping in a series of raids.

Key witness

The Old Bailey heard the defendants had at least two fellow conspirators.

One of them, an American called Mohammed Junaid Babar, admitted his role in the plot after being arrested by the FBI and became a vital prosecution witness.

The other was Mohammed Momin Khawaja, awaiting trial in Canada.

The jury deliberated for 27 days, a record in British criminal history.

A Crown Prosecution Service spokesman said the deal allowing Babar to testify was unprecedented in British courts.

Outside court a solicitor read out a statement on behalf of Nabeel Hussain. He said: " I have always maintained my innocence of the allegations against me. I have never been an extremist or believed in extremism... I am so glad this ordeal is over."

A special edition of Panorama, focusing on the failure of MI5 to follow up on Mohammad Sidique Khan after he was logged during the surveillance operation, will be broadcast at 1900BST on Monday.

Britain's biggest terrorism trial has just ended with the conviction of men who conspired to build a massive homemade bomb. But with the lifting of reporting restrictions, Panorama reveals the truth about what MI5 really knew about the July 2005 London bombers.

The public has never been told the full story about the links between the fertiliser bomb plot, known as Operation Crevice, and two of the 7 July suicide bombers.

But was there an opportunity to identify them in advance? Did the security services make a serious mistake and was an opportunity missed? Panorama believes the evidence clearly indicates there was - but that it does not necessarily mean that the attacks could have been prevented.

The missed opportunity happened during an MI5 surveillance operation on 2 and 3 February 2004 - 17 months before the London bombings. The officers were watching Omar Khyam, the ringleader of the fertiliser bomb plot.

They had been watching him Khyam for almost a year after he had first appeared on their radar in Luton as part of an investigation into suspected Al Qaeda connections in the UK.

By February 2004, they had stepped up their surveillance - but Scotland Yard's Anti-Terrorist Branch were not yet involved as at the time it was a purely MI5 intelligence gathering operation.

On 2 February, MI5 officers noted two strangers talking to Khyam. They would later turn out to be Mohammed Sidique Khan and Shehzad Tanweer - two of the London suicide bombers.

I have seen MI5's surveillance log - and what it records happened next. The details were never revealed in court because of reporting restrictions. According to the log, a Honda car, registration R480 CCA, was seen in Langley Parade, Crawley. Omar was in the passenger seat and the driver was Khan.

MI5 ran a check on ownership of the vehicle. The name meant nothing at the time. It was registered in the name of Khan's wife.

Although they did not know who he was, the officers followed the car after it left Crawley, not knowing where it was going. After Khyam was dropped off, Khan drove onto the M1 and headed north.

When it stopped for petrol at Toddington services, MI5's log states that photographs were taken of the passengers. MSK was covertly snapped in the vicinity of Burger King at the entrance to the services' refreshment area.

Was the photograph clear enough to identify him? The intelligence services say the quality was very poor. But other sources who have seen it told me that Khan was identifiable. Panorama asked to see the photograph, but the request was refused. We understand that one other photograph, said to be of marginally inferior quality, was subsequently taken of MSK going into an undisclosed internet café.

Followed to Leeds

According to MI5's log, officers followed the Honda for a further 150 miles to Leeds. It notes the addresses and locations where some of the passengers got out.

The Honda, with Khan at the wheel, was eventually seen parking out side his family home in Dewsbury. The log notes the precise address.

Within weeks, the investigation into Khyam had become a major operation, leading to arrests in Canada, the UK and Pakistan.

In June 2004, the intelligence services again checked out the car. This time, they found it had been re-registered in the name of 'Siddeque Khan'. Again, at the time, the name meant nothing.

In their investigation into the background to the 7 July London bombings, Parliament's Intelligence and Security Committee (ISC) gave MI5 a clean bill of health.

It confirmed that Khan and Tanweer had appeared on the radar of an earlier investigation - meaning Operation Crevice. But it concluded: "the decisions not to give greater investigative priority to these two individuals were understandable".

But the ISC was either never given the full details of the 2 February surveillance operation or was informed but chose to omit key facts - details which might have fuelled demands for the public or independent inquiry the government has resisted.

While the ISC's report was crafted to avoid prejudicing the Crevice trial, it could have alluded to the 2 February surveillance operation without linking it to Omar Khyam.

MI5 defence

MI5's position is that neither Khan nor Tanweer were under Security Service or police surveillance.

But Conservative shadow Home Secretary David Davis had a different view - and has called for a full independent inquiry.

"That clearly is not true," he told Panorama. "It's self evidently a surveillance operation. They're being followed, they're keeping somebody under observation, they're making a note of where they're going, they're presumably making a note of the car itself, and the times, and who's there.

"All those things amount to a surveillance operation. They let somebody to go off surveillance who subsequently turned out to be a suicide bomber."

More sightings

The Old Bailey heard that Khan and Tanweer were spotted with Khyam on three more occasions - although both the police and MI5 say they were still not identified by name.

But the serious mistake that Panorama has identified is that at the time MI5 never informed West Yorkshire Special Branch about the surveillance operation that ended up in its patch.

It never told them about the Honda, its registration number, the name of its owner, the addresses and places where the passengers had got out or its final destination.

Nor did it show them the photograph of the 'stranger' covertly taken at Toddington services.

It never asked local West Yorkshire Police Special Branch officers if they knew anything about the individuals or the addresses and, if they didn't, to try and find out, given concerns about the cell they had been seen associating with.

There is however a tantalising hint of what the ISC knew amongst the conclusions to its report.

"The Security Service and Special Branches [need to] come together in a combined and coherent way to tackle the home grown threat," said its report. "We are concerned that more was not done sooner."

The lesson was clearly learned. Today there are new Counter Terrorism Units manned jointly by MI5 and local anti-terrorist and Special Branch officers located in West Yorkshire, Manchester and Birmingham. Luton is expected to have one soon.

So why weren't the leads followed up?

Operation Crevice led to investigations into 55 suspects, with only 15 of them thought to be directly connected to the bomb plot. Khan was not one of these. One bugged conversation focused on fraudulent fund raising, possibly for Al Qaeda's coffers - but there was no indication Khan himself was planning to bomb the UK. The Security Service was looking at up to 50 terrorist networks in the UK.

The most pressing and potentially deadly plot, also uncovered in 2004 amid massive pressures on resources, led to the jailing of Dhiren Barot for 40 years last November for plotting mayhem in the UK.

Deputy Assistant Commissioner Peter Clarke, National Coordinator for Terrorist Investigations, told Panorama about the logistical challenge of running surveillance - explaining how resources are the crucial factor.

"An average surveillance team is perhaps 15 to 20 people strong," he said. "In order to keep one person under 24 hour surveillance you'll need a minimum two, perhaps three, surveillance teams for each person. Three surveillance teams could be anything up to 60 people."

Today, as the Crevice plotters face prison, it's believed there are over 200 networks still under investigation.

A genuine threat?

However, the agencies say there was another reason why Khan was not a priority target.

When he was subsequently spotted three times in the company of Omar, the bugged conversations indicated they were not talking about attacking the UK but about ripping off banks, companies and financial institutions.

According to Peter Clarke, the money was destined for Al Qaeda's coffers and the conversations indicated that Khan was planning to leave for Pakistan and possibly to fight in Afghanistan.

Indeed, in one conversation Khan, who was expecting to become a father, was worried about saying goodbye to his baby.

Could 7/7 have been stopped? Had MI5 brought West Yorkshire Special Branch into their confidence at the time, MSK could have been identified, watched, followed and fed into the wider intelligence picture over the following seventeen months before he launched the fatal attacks.

West Yorkshire police say the first they knew that MSK was the leader of the London bombers was after 52 people had died.

Panorama reporter: Peter Taylor
Producer: Howard Bradburn
Editor: Sandy Smith

Sir Ian said the job was "hugely challenging", but Londoners should be "reassured" that Cdr McDowall had the knowledge and experience needed to do it.

Met Police Authority chair Len Duvall said Cdr McDowall was chosen for "his display of operation leadership".

Born in 1957, Cdr McDowall joined the Met in 1980. He has served as deputy to the national co-ordinator of terrorist investigations since January 2005.

He told the recent health and safety trial into Mr de Menezes death that he still thinks every day about what could have been done differently in that case.

A Brazilian government statement said: "The foreign ministry expresses its unhappiness with the decision of the Independent Police Complaints Commission (IPCC) which absolves four senior officers involved in the death of the Brazilian citizen Jean Charles de Menezes."

BBC correspondent Tim Hirsch in Sao Paulo said the statement went on to say that the government would continue to support Mr de Menezes's family, and to offer them every conceivable assistance.

Mr de Menezes, 27, was shot seven times in the head in Stockwell Tube underground station in London, two weeks after the London bombings in July 2005 that killed 52 people.

Mr de Menezes's cousin said the IPCC decision was "a scandal" and should have been delayed until after the inquest.

Vivian Figuierdo said: "It is entirely premature for the IPCC to do this before an inquest where vital evidence about the actions of these officers could come to light.

"Sadly we have come to expect this from the IPCC - they have done nothing to hold the police to account for the killing of an innocent man."

'No personal culpability'

Ms Dick was the commanding officer on 22 July 2005 when Mr de Menezes was killed.

The three other senior officers were identified as Silver, Trojan 84 and Trojan 80.

In November, the Met Police force was found guilty of breaching health and safety laws over the shooting.

But the Old Bailey jury added a rider to its verdict to say that Ms Dick bore "no personal culpability" for what went wrong.

The IPCC considered whether she was responsible for failures in the planning or management of the operation that amounted to a disciplinary offence, but decided she was not.

In a statement, it said: "The IPCC cannot foresee any circumstances in which new evidence might emerge which would cause any disciplinary tribunal to disregard the jury's rider."

The watchdog said that as the responsibilities of Ms Dick and the other three officers were "intertwined", it could not see how a tribunal could attach personal blame to them but not to her.

A Met Police spokesman said the shooting was "a matter of deep regret", but added: "We are pleased by this move forward and for these officers and their families who have faced much uncertainty."

The case, which is expected to last two days, is being heard by Sir Igor Judge, Mr Justice Forbes and Mr Justice Mackay at the Court of Appeal's criminal division.

'Elaborate hoax'

George Carter-Stephenson QC, for Ibrahim - who was said to be the ringleader of the conspiracy, said there were two grounds for appeal.

He said the trial judge had "erred in law" with regard to Ibrahim's right to legal advice and representation in his "safety" interviews with police - emergency interviews conducted on the grounds of public safety.

He also argued the judge "erred in law" when he ruled Ibrahim's lawyer could not ask questions or call evidence about a late confession from his co-accused Hussain Omar.

Mr Carter-Stephenson said the four men had maintained the 21 July events were "an elaborate hoax designed to protest against and draw attention to Britain's role in the attack upon and occupation of Iraq".

He said Ibrahim argued the explosive devices, which were carried in rucksacks, had been made to look realistic, but had flaws deliberately built into them "to ensure that the main charge of each of those devices would not detonate".

On 21 July 2005, the four men tried to detonate rucksacks carrying explosives on three London Underground trains at Shepherd's Bush, Oval and Warren Street station - as well as a bus in Hackney Road. None of the devices exploded.

It came two weeks after the 7 July bombings on three Tube trains and a bus which killed 52 people and injured more than 770. The four bombers were also killed.

A fifth man, Manfo Kwaku Asiedu, who admitted conspiracy to cause explosions and was jailed in November for 33 years, will seek permission to appeal against his sentence. His case is expected to be heard on Thursday.

Mr Mansfield, who represents the de Menezes family, told the hearing how surveillance officers were shown a passport-style picture of Osman recovered from a gym card found in his unexploded rucksack after the 21 July attempted suicide bombings.

Three other torn-up images of Osman and his wife were also found, he said.

Strategy

Mr de Menezes was killed when he boarded a train at Stockwell Tube station in south London after firearms officers mistook him for Osman the day after Osman and three other men had failed in their bombing attempts.

Mr Mansfield went on to question deputy assistant commissioner John McDowall, who was responsible for developing the strategy to capture the men behind the attempted 21 July attacks.

"Were you aware that, in fact, some of them were out and about on patrol as it were, as surveillance, without a photograph at all. Do you know that?"

Mr McDowall replied: "No, I was not aware of that."

Mr Mansfield continued: "I mean, that does not help does it, when you know about the difficulties of positive identification, if you do not even have a copy of the photograph with you and you have only seen it back at a briefing?

"That is not exactly best practice, is it?"

Mr McDowall replied: "No, sir, no."

'Omissions'

Mr Mansfield went on to accuse Mr McDowell of a series of failings, including taking strategic decisions "in a vacuum" without considering what could be achieved by firearms and surveillance colleagues.

He also said officers watching the Scotia Road flats had not been told clearly what do do if anyone emerged.

Mr Mansfield asked: "Has that ever occurred to you that, in fact, there are omissions by you that really, had you followed up - and a large number of things - the whole scenario might have been different?"

Mr McDowall responded: "I do not accept that. I think that, with benefit of hindsight, one does look back at what one has or has not done and, clearly, I think, there probably are things that I could have done but for whatever reason at that time I did not think of it."

But he said there were "certain aspects" that could have been done differently when preparing the manhunt strategy.

'Split-second decision'

Mr McDowall went on to tell the courtroom at the Oval cricket ground that while he hoped it would not happen again, it was "entirely feasible" a similar tragedy could occur "just with the way circumstances unravel themselves".

On Monday - the first day of the 12-week inquest into Mr de Menezes' death - jurors were told firearms officers made a split-second decision to kill him.

The two firearms officers - identified only as Charlie Two and Charlie 12 - will give evidence in public for the first time later in the inquest.

The jury will consider whether or not Mr de Menezes was unlawfully killed.

There have been five inquiries relating to the death and its aftermath, including a criminal trial.

In 2007, an Old Bailey jury found the Metropolitan Police guilty of breaching health and safety laws, after hearing about the events leading up to Mr de Menezes being shot.