Iraq posed little threat to Britain just before the 2003 invasion - but the danger of extremist attacks surged afterwards, a former head of the MI5 security service told an inquiry yesterday.
Eliza Manningham-Buller, chief of the domestic intelligence agency from 2002 to 2007, also dismissed any connection between Iraq and the September 11, 2001 attacks on the United States.
She was giving evidence at Britain's public inquiry into the war in Iraq, which has heard from figures including former Prime Minister Tony Blair, who was in power when the country joined the US-led invasion.
Baroness Manningham-Buller said that in 2002, MI5 had advised Mr Blair's government that the "direct threat" from Iraq was "low".
"We did think that Saddam Hussein might resort to terrorism in the theatre if he thought his regime was toppled but we didn't believe he had the capability to do anything in the UK," she said.
But MI5 "did not foresee" the number of Britons who became involved in extremist plots at home - such as the July 7, 2005 bombings in London which killed 52 people - following the conflict, she said.
"Our involvement in Iraq radicalised... a few among a generation - who saw our involvement in Iraq and Afghanistan as being an attack on Islam," she said.
"During 2003-04, we realised that the focus was not foreigners. The rising and increasing threat was a threat from British citizens and that was a very different scenario to, as it were, stopping people coming in."
She said MI5 was not "surprised" that British nationals were involved in terror plots.
"There had been an increasing number of British born individuals... who were attracted to the ideology of Osama bin Laden and saw the West's activities in Iraq and Afghanistan as threatening their fellow religionists and the Muslim world," she said.
"So it undoubtedly increased the threat.
"By 2004 we were... very overburdened by intelligence on a broad scale that was pretty well more than we could cope with in terms of leads to threat plots and things that we needed to pursue," she added.
Baroness Manningham-Buller also said there was "no credible intelligence" linking Iraq to the September 11 attacks.
"There is no credible intelligence to suggest that connection. That was the judgment of the CIA. It was not a judgment that found favour in some parts of the American machine," she said.
She added that MI5 had been asked to contribute to the government's contentious 2002 dossier on Iraq's supposed weapons of mass destruction, but declined.
"We were asked to put in some low-grade, small intelligence to it and we refused because we didn't think it was reliable," she said.
She said it was clear, with hindsight, that there was an "over-reliance" on certain intelligence.
The probe is due to report by the end of the year and will hear from former United Nations weapons inspector Hans Blix as well as senior military figures next week.