The report concludes that despite serious damage to the leadership of al-Qaeda, the threat from Islamic extremists has spread both in numbers and in geographic reach.
"If this trend continues, threats to US interests at home and abroad will become more diverse, leading to increasing attacks worldwide," the document says.
"The confluence of shared purpose and dispersed actors will make it harder to find and undermine jihadist groups."
President Bush and his top advisers had said that the document’s assessment of global terrorism supported their arguments but more than three pages of stark judgments contradict their arguments.
The unclassified document said:
- The increased role of Iraqis in opposing al-Qaeda in Iraq might lead the terror group's veteran foreign fighters to refocus their efforts outside that country.
- While Iran and Syria are the most active state sponsors of terror, many other countries will be unable to prevent their resources from being exploited by terrorists.
- The underlying factors that are fuelling the spread of the extremist Muslim movement outweigh its vulnerabilities. These factors are entrenched grievances and a slow pace of reform in home countries, rising anti-US sentiment and the Iraq war.
- Groups "of all stripes" increasingly will use the internet to communicate, train, recruit and obtain support.
The report's few positive notes were couched in conditional terms, depending on successful completion of difficult tasks ahead for the United States and its allies.
In one example, analysts concluded that more responsive political systems in Muslim nations could erode support for Islamic militants.
The intelligence assessment also lays out weaknesses of the extremist movements that should be exploited, for example analysts note that extremists want to see the establishment of strict Islamic governments in Arab countries, which they say would be unpopular with most Muslims.
The report also argues that the loss of key al-Qaeda leaders - Osama bin Laden, Ayman al-Zawahri and Abu Musab al-Zarqawi - in "rapid succession" probably would cause the group to fracture. Zarqawi was killed in June, but the top two al-Qaeda leaders have remained elusive for years.
Virtually all assessments of the current situation were bad.
Mistaken
But President Bush says critics who believe the Iraq war has worsened terrorism are naive and mistaken.
"To suggest that if we weren't in Iraq we would see a rosier scenario, with fewer extremists joining the radical movement, requires us to ignore 20 years of experience."
One leader who believes the war in Iraq has created a more dangerous world is Pakistani President Pervez Musharraf.
The US ally in Washington for a meeting with Mr Bush, found himself drawn into the political dispute when he was asked in a CNN interview about an assertion in his new book that he opposed the invasion of Iraq.
"I stand by it, absolutely," Musharraf said, adding that "It has made the world a more dangerous place."