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Report Finds FBI Terror Flaws

Flawed internal communications, funding limits, legal restrictions and agency culture conspired to hobble the FBI's efforts to thwart terrorism prior to Sept. 11, a federal panel reported Tuesday.

The Sept. 11 commission released the report as it began a new two-day round of hearings Tuesday with testimony from former FBI Director Louis Freeh, Attorney General John Ashcroft and former Attorney General Janet Reno. Thomas Pickard, who served as acting FBI director in the months just before the attacks, and former CIA counterterrorism center director Cofer Black also were scheduled to testify. is Webcasting the 9/11 panel hearings throughout the day.

CBS News Correspondent Jim Stewart reports the officials face questions over why the FBI didn't act when its Phoenix office urged a national inquiry into whether Arab extremists were taking flight training, and why it didn't connect that dot to the arrest a month later of Zacarias Moussaoui who aroused suspicions at another flight school.

Another mystery is why Khalid al-Mihdhar and Nawaf al-Hazmi, who lived with an FBI informant in San Diego, were not added to a terrorist watch list until they were already here.

The report released Tuesday, which is preliminary, found a host of cultural and practical problems affecting the FBI's counterterrorism efforts. Thomas Kean, the chairman of the commission, said the report amounted to "an indictment of the FBI."

"On September 11, 2001, the FBI was limited in several areas critical to an effective, preventive counterterrorism strategy," the report concluded. "Those working counterterrorism matters did so despite limited intelligence collection and strategic analysis capabilities, a limited capacity to share information both internally and externally, insufficient training, an overly complex legal regime, and inadequate resources."

In his testimony, Freeh defended his former agency's performance, saying that the environment before Sept. 11 would not have allowed the bureau to do more.

"The point is not that any FBI agent thought that investigating these cases was the best way" of fighting terrorism, Freeh said. "The point of these investigations was, in the absence of invading Afghanistan, in the absence of armed Predator missiles, in the absence of all the things that were done after Sept. 11 … we were left with alternatives that were netter than no alternatives."

The commission's report outlined several successes by the FBI — like catching people in the 1993 World Trade Center bombing and 1998 Embassy bombing cases — but also catalogued a host of problems in the bureau's counterterrorism efforts.

Its historic focus on organized crime meant that agents saw counterterrorism as a "backwater." Resource restraints compounded the problem, the report found.

Quoting an external review of the FBI, the staff report said, "by 2000 there were twice as many agents devoted to drug enforcement matters as to counterterrorism."

"On September 11, 2001, only about 1,300 agents, or six percent of the FBI's total personnel, worked on counterterrorism," it read. There was a lack of properly trained agents as well — one review found that 66 percent of FBI intelligence analysts lacked proper training.

The report found that the FBI's counterterrorism strategy "was not a focus of the Justice Department in 2001." The Bush administration proposed a major increase in FBI funding, but an internal budget plan from early 2001 "made reducing the incidence of gun violence and reducing the trafficking of illegal drugs priority objectives."

The bureau's counterterrorism chief, Dale Watson, told the commission "that he almost fell out of his chair when he saw the memo, because it made no mention of counterterrorism." On the day before the 2001 attacks, Ashcroft rejected a request for more counterterrorism funding.

Those agents who were assigned to counterterrorism faced other obstacles. FBI field offices took the lead on most cases, hampering efforts to detect larger, nationwide plots. Faulty information management systems further restricted the ability to share information, and agents were reluctant to write investigative findings down because the documents could be used be defense lawyers to undermine criminal cases.

Reno told the commission that when she took office, she learned quickly that "the FBI didn't know what it had."

Agents felt bound by legal guidelines from the 1970s meant to curb the misuse of federal power, and by "the wall" — a legal separation of criminal and intelligence investigations. Since intelligence officers had wider surveillance powers, "the wall" was meant to prevent any misuse of those powers by criminal investigators. The report said the wall prevented intelligence and criminal agents from talking to one another.

"Justice Department prosecutors and FBI criminal agents were responsible for large criminal cases, like the Embassy bombings. The intelligence side of the FBI, though, had the legal tools that were essential for domestic intelligence work, such as FISA surveillance," the report found.

"In this environment, domestic counterterrorism efforts were impaired," it said.

"The resource issue and the legal authority issue certain limited what we were able to do before Sept. 11," Freeh told the panel. Freeh said the threat that terrorists might use airplanes as weapons was "fully known and was incorporated into special events planning."

Earlier, commission members and others were skeptical of Freeh's contention that the FBI did all it could.

"I mean, there were a number of things that happened, some of them in the FBI. There were miscommunications between intelligence agencies, a miscommunication within the FBI itself," Kean, a former Republican New Jersey governor, told the CBS News Early Show. "And if some of those things hadn't occurred, who knows, things might have been a little different."

Hamilton acknowledged that, "Congress is a culprit here as well as many others, including myself."

But Sen. Charles Grassley, R-Iowa, said in a letter Monday to current FBI Director Robert Mueller that total FBI spending rose some 132 percent from 1993 to 2003, with counterterrorism requests nearly always met or exceeded.