The cause of the breakdown of the talks is Iraq's insistence that it has eliminated all its biological, chemical and nuclear weapons as well as the means to manufacture and deliver them. This is flatly contradicted by Mr Butler.
Tariq Aziz, the Iraqi Deputy Prime Minister, ended his meeting with Mr Butler by accusing him and his team of wanting at all costs to maintain sanctions. Mr Aziz said that the team had not found any evidence that Iraq had non-conventional weapons, despite close monitoring and repeated searches of Iraqi facilities over four years.
In the last crisis with Iraq, in February, the United States and Britain found limited support in the Security Council for taking military action against Iraq. Despite strenuous diplomatic efforts they were unable to rally to their side the Arab states who fought against Iraq in the Gulf war.
That crisis was averted when U.N. Secretary-General Kofi Annan made a dramatic last-ditch intervention going to Baghdad and persuading Saddam to resume cooperation with the inspection regime, but many said it was only a matter of time before the arrangement collapsed.
"It was almost inevitable. There has been a hardening of Iraq's attitude for months," said Tony Cordesman, a Middle East specialist with the Centre for Strategic and International Studies.
Another analyst, Kenneth Pollack of the United States Institute for National Strategic Studies, said it was too early to assess the seriousness of the present situation. But he said: "It is clear the current state of US-Iraq relations is untenable. The point is whether Saddam will try to push for a change now or wait until the fall, which many had predicted," he said.
Iraq felt it had succeeded in breaking out of its political isolation, but sanctions have continued. Baghdad appears determined to risk another confrontation with the UN in order to get sanctions finally lifted.
Mr Butler looked shaken after his last meeting with Mr Aziz and other Iraqi leaders in the Foreign Ministry in Baghdad. He cancelled a morning press conference yesterday, saying "my duty is to report what has happened to the Security Council and I will leave for New York today".
The Iraqi case was somewhat damaged in the summer when tests in an American laboratory of missile warhead fragments collected by Mr Butler's team showed traces of VX nerve gas. Iraq demanded fresh tests in laboratories in neutral countries and these are currently being carried out in France and Switzerland.
Although another crisis between the UN and Iraq over non-conventional weapons and sanctions was always likely, it had been expected to come in October, when Mr Butler presents his six-monthly report on Iraq's compliance with the Gulf war ceasefire resolutions on non-conventional weapons.
Mr Butler's decision to return to New York yesterday shows that the confrontation will come more immediately.