MI5 were tracking two of the July 7 London bombers before the attacks, but were diverted to other anti-terrorist operations, a report has revealed.

Intelligence groups had "come across" Mohammad Sidique Khan and Shehzad Tanweer before they carried out suicide bombings on the capital's transport network.

But the report also concluded that little could have been done to prevent the terrorist attacks on tubes and buses which killed 52 people.

A "lack of resources" was to blame for preventing security and intelligence services from intercepting the four British bombers and not an "intelligence failure".

"As there were more pressing priorities at the time, including the need to disrupt known plans to attack the UK, it was decided not to investigate them further," the report said.

"We conclude that, in light of the other priority investigations being concluded and the limitations on Security Service resources, the decisions not to give greater investigative priority to these two individuals were understandable."

Had more resources been in place, the chances of stopping the attack would have increased, the cross-party report said.

The Intelligence and Security Committee report also called for the current seven-tier system to be scrapped in favour of a clear public warning system, similar to that used in the US.

In the weeks leading up to the attacks the threat level was lowered by MI5, but the report said it "was not unreasonable" based on information available at the time.

However, it did criticise the system for being impractical.

"After the July attacks there is an even greater need for members of the public to be better informed," the report said.

A cabinet review of the threat system also recommended a simplification of the system and reducing the number of alert levels.

A second report, by the Government's home office, was also released today.

The report confirmed that the four bombers acted alone and that there was no formal link with al-Qaeda.

The inquiry found that the terrorist attack was carried out on a "shoe-string budget" from information found on the internet.

A Downing Street spokesman ruled out a public inquiry into the July 7 bombings, despite calls from some survivors.

The ISC report said terrorism was a "home-grown" problem, but the extent to which the attacks were directed by contacts in Pakistan remained "unclear".

"The 7 July attacks highlighted, perhaps above everything else, the need to do more to tackle radicalization of British Muslims in the UK," it said.

Meanwhile, The Independent reported today that "at least 700 people" were suspected of involvement in al-Qaeda terror plots.

The number of terror suspects identified by security services has tripled since the September 11, 2001, attacks in New York.

"The service (MI5) is currently at a very high level of operational intensity in investigating plotting leading to mass casualty attacks in the UK," a source told the newspaper.

"The current picture is very much like an extremist soap with a number of overlapping networks with a common cause. But these networks aren't attached to each other.

"The picture is changing all the time. Many of the plotters are homegrown and currently living in the UK."