Foreign Office warned Blair that Iraq war was fuelling Islamic extremism

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The revelation will increase the Government's problems as it tries to convince an increasingly sceptical public that invading Iraq was a step towards eliminating world terrorism. A letter, written in May 2004 by the permanent secretary to the Foreign Office, Sir Michael Jay, and leaked to The Observer, warns that the task of engaging with Muslims had been "knocked back" by the conflict.

Sir Michael wrote: "Colleagues have flagged up some of the potential underlying causes of extremism that can affect the Muslim community, such as discrimination, disadvantage and exclusion. But another recurring theme is the issue of British foreign policy, especially in the context of the Middle East peace process and Iraq. British foreign policy and the perception of its negative effect on Muslims globally plays a significant role in creating a feeling of anger and impotence especially among the younger generation of British Muslims."

It went on to warn that this resentment was a "key driver" behind recruitment by fundamentalist groups. The letter added: "Though we are moving from a conflict to a reconstruction phase in Iraq, there are no signs of any moderation of this resentment. Our work on engaging with Islam has therefore been knocked back."