Ministers are planning big cuts in military hardware in order to pour extra money into high technology intelligence operations. The plans are likely to provoke a bitter political war with service chiefs.
The Secretary of State for Defence, Geoff Hoon, is convinced that the main threats to Britain come from terrorists and insurgents, who have to be attacked with pinpoint accuracy, rather than conventional armies.
Mr Hoon is due to publish his long awaited Defence White Paper on Thursday but the cuts will not be made explicit because he wants to minimise political reaction. They will, however, emerge over the next few months.
Service chiefs fear they will lose millions of pounds worth of promised hardware. The controversy will be heightened because of the spectacular failure of the intelligence services in assessing whether Iraq had weapons of mass destruction. Before sending British troops to war in Iraq, Tony Blair claimed in a published dossier that Saddam Hussein's regime had a "useable chemical and biological weapons capability" which presented a "serious and current" threat to the West. Since March, hundreds of inspectors have combed Iraq in search of these weapons, without success.
One casualty of the new policy could be the £50bn Eurofighter, Typhoon, being developed jointly by BAE Systems, Finmeccania of Italy, and Eads, the pan-European aerospace combine. The first batch of the 620 planes is already under construction, but there are fears that the final 236 may be at risk.
The Royal Navy is also resigned to experiencing an outbreak of what wags call SCS - "shrinking carrier syndrome". Improved technology means that new aircraft carriers can lose 10 per cent of their size without damaging their effectiveness. There is suspicion that the shrinking carriers will hit the Joint Strike Fighter that is due to enter service early in the next decade. The number of aircraft purchased could be 40 fewer than originally planned.
Explaining the philosophy behind the White Paper in a speech last July, Mr Hoon said: "The experts call this approach Effects-Based Operations. They focus on undermining an opponent's ability to exercise effective command and control of his forces rather than simply on battlefield attrition."
He also used a speech to the City of London last month to counter fears that thousands of army personnel could be made redundant as the Army's presence in Northern Ireland is cut from 14,000 to 5,000 over the next two years. He insisted that he wants to keep the Army at its present level of 103,000 trained soldiers. Even that will leave the Government open to complaints that they are asking too few soldiers to do too much.
Last week, Field Marshal Peter Inge, the former Chief of Defence Staff, said in the House of Lords: "Our armed forces are too small for the tasks that are laid upon them. The Army needs a minimum of 4,000 to 5,000 men and women to increase certain units to make them more robust... We are increasing the risk of operational failure."
Keith Simpson, a Tory defence spokesman, claimed: "They haven't yet done the detailed work required because they were hoping that Uncle Gordon Brown was going to be more generous than he has been. I fear the White Paper will be a long essay which the MoD will be using as a smokescreen to cover up what will, at the end of the day, be painful cuts."
Unlike that in Iraq, most future operations are likely to be more like those in Afghanistan or Sierra Leone, where there was no large standing army to be overcome.
Mr Hoon was delighted by the success of a computerised "game" based on satellite pictures and intelligence from MI6 which tested five options for taking Basra, in southern Iraq, last March. A team of MoD computer experts created a computer model which included information on the positions of Iraqi troops, their weapons, and even the buildings and alleyways where they might hide.Reuse content