MI5 secretly monitored two of the London 7 July bombers four times before the 2005 attacks, it emerged during the fertiliser bomb plot trial.
Details of how much the security services knew about suicide bombers Mohammad Sidique Khan and Shehzad Tanweer emerged at the trial.
The trial linked the bombers to an international network which was watched a year before the 2005 suicide attacks.
The security services say they did not identify Khan or consider him a risk.
The new director general of MI5, Jonathan Evans, issued a statement in which he denied being "complacent" and added: "The attack on 7 July in London was a terrible event. The sense of disappointment, felt across the service, at not being able to prevent the attack (despite our efforts to prevent all such atrocities) will always be with us."
He added: "The Security Service will never have the capacity to investigate everyone who appears on the periphery of every operation."
The details emerged during the year-long trial of seven men accused of plotting to build a massive bomb made out of fertiliser.
Two of the men, Nabeel Hussain and Shujah Mahmood, were found not guilty.
Information presented in court at the Old Bailey, but kept from the jury, revealed that police and MI5 investigators had seen Khan and Tanweer meeting some of the conspirators in 2004 on four occasions.
Evidence reveals both Khan and Tanweer were associated with a broad network of British-born extremists, also called "jihadis", stretching from north America to Pakistan. Counter-terrorism officials link this network directly to senior al-Qaeda figures.
Hearings at the Old Bailey reveal that Omar Khyam, the leading figure in the plot to build a fertiliser bomb, met Khan on at least five occasions - once in Pakistan and four times in the UK.
Khyam also met Shehzad Tanweer three times, according to information placed before the court.
In the first meeting, Mohammad Sidique Khan travelled to Pakistan in July 2003 with another man to deliver funds raised in the UK for jihadi groups, such as Kashmiri fighters or the Taleban. He was sent by a Luton-based extremist - and met at the other end by another British man.
Khyam was then organising a paramilitary training camp and asked Khan to join them.
At the secret camp high in the mountains of Pakistan's North-West Frontier Province, the later London bomber fired assault rifles, light machine guns and rocket launchers. Others in the party received explosives training.
Back in the UK, the court heard that Khan and Tanweer featured in secret surveillance as counter-terrorism officers closed in on the bomb plot.
In the first meeting, the security services recorded Khan and Tanweer meeting Omar Khyam and Shujah Mahmood, his younger brother, on 2 February 2004.
While the details of what was said remained unknown, MI5 officers followed Khan and Tanweer to their home addresses in Leeds and Dewsbury.
Three weeks later, officers recorded Khan in Khyam's bugged car, discussing imminent plans to travel to Pakistan.
According to the material placed before the court, Khan asked Khyam if he really was a terrorist, referring to links the defendant had with figures in Pakistan.
"I am not a terrorist, they are working through us," said Khyam.
"There's no one higher than you," replied Khan.
MSK WATCHED BY MI5
2 February 2004
21 February 2004
28 February 2004
23 March 2004
Referring to Khyam's plan to leave shortly, Khan was recorded saying: "This is a one-way ticket, yeah? As you're going to leave the country you may as well rip the country apart economically as well."
MI5 had previously told the MPs that Khan and Tanweer had been "on the periphery" of an investigation. Neither were known to have terrorist intentions nor had they been identified and listed as terrorist targets, MPs learned. The BBC understands however that MI5 did in fact know Khan's surname in June 2004 after checking ownership of his car.
Speaking in November 2006, the outgoing MI5 chief Dame Eliza Manningham-Buller conceded the security services were under such pressure that they would not "always make the right choices".
Security services defended
Graham Foulkes, whose 22-year-old son David, was among those killed by Khan on the London Underground, called for a public inquiry - saying the security services had to account for what they knew.
"On 7 July and immediately after the attacks, one part of the security services were running around shouting 'clean skins, clean skins', meaning that these were home-grown terrorists and they were unable to identify them," said Mr Foulkes in a BBC interview.
"The security service is clearly disjointed and dysfunctional in that they are not talking to each other or they are not disseminating the information in a coherent way."
But former home secretary David Blunkett, in post at the time, defended MI5.
"The truth was we'd literally doubled the expenditure, we'd expanded rapidly by 50% the capacity [of MI5]," Mr Blunkett told the BBC.
"To switch from the Northern Ireland situation into the new form of counter-terrorism was very difficult and I think the security and intelligence services did everything they could at that time to ensure we were protected.
"We were told of the inability to follow up every lead. We were aware of the kind of resources they needed and were doing our best to provide them. With hindsight, obviously a greater integration of what was taking place at local level with what was taking place nationally would have been wise."
The evidence about Khan came from an American man also at the Pakistani training camp and later turned supergrass.
Mohammed Junaid Babar, a New York man of Pakistani descent, was arrested as part of the investigation - and it was only after the London bombings that it became clear that he knew Khan.
The BBC understands the American was never shown an MI5 surveillance photograph of Khan taken as officers watched the plotters in early 2004.