Mr. Clinton cited the lack of planning for what would happen after Saddam Hussein was overthrown.
"Saddam is gone. It's a good thing, but I don't agree with what was done," Mr. Clinton told students at a forum at the American University of Dubai.
"It was a big mistake. The American government made several errors ... one of which is how easy it would be to get rid of Saddam and how hard it would be to unite the country."
Mr. Clinton's remarks came when he was taking questions about the U.S. invasion, which began in 2003. His response drew cheers and a standing ovation at the end of the hour-long session.
Mr. Clinton said the United States had done some good things in Iraq: the removal of Saddam, the ratification of a new constitution and the holding of parliamentary elections.
"The mistake that they made is that when they kicked out Saddam, they decided to dismantle the whole authority structure of Iraq. ... We never sent enough troops and didn't have enough troops to control or seal the borders," he said.
As the borders were unsealed, "the terrorists came in," he said.
Mr. Clinton said it would have been better if the United States had left Iraq's "fundamental military and social and police structure intact."
Democrats are accusing President Bush of having misled the American public about the urgency of the Iraqi threat before his order to invade, and Mr. Bush on Monday threw back at Democratic critics the worries they once expressed about Saddam.
"They spoke the truth then and they're speaking politics now," Mr. Bush charged.
On Tuesday, Defense Secretary Donald H. Rumsfeld continued Mr. Bush's attack, citing the words of Clinton and others from his administration as saying Saddam was a security threat to the United States and its allies.
At a Pentagon news conference, Rumsfeld noted the Iraq Liberation Act that Congress passed in 1998 had said it should be U.S. government policy to support Saddam's removal from power. He noted that Clinton signed the act and ordered four days of bombing in December 1998.
Recent opinion polls show Mr. Bush as having the lowest approval rating of his presidency. In AP-Ipsos polling, a majority of Americans say Mr. Bush is not honest and they disapprove of his handling of foreign policy and the war on terrorism.