A Downing Street spokesman described the row with the BBC over the Iraq dossier as a "game of chicken", the inquiry into weapons expert Dr David Kelly's death has heard.
Powell: No 10 chief-of-staff
The e-mail comment from Tom Kelly, came as Tony Blair and his closest staff's role in the public naming of Dr Kelly emerged under scrutiny on day five of the inquiry.
The prime minister's chief-of-staff, Jonathan Powell, said senior officials did not consider the strain and burden that might be imposed on Dr Kelly in being publicly named as the suspected "mole" for a BBC claim Downing Street "sexed up" a dossier on Iraq's weapons.
Mr Powell said that senior officials, including press chief Alastair Campbell, were told that Dr Kelly was almost certainly the source for the BBC report - and that what he said had been "embellished" by reporter Andrew Gilligan.
Set up after apparent suicide of Dr David Kelly in July
Dr Kelly was government expert in Iraq weapons programmes
He was named as source of controversial BBC report
Report alleged government had 'sexed up' a dossier on Iraq's weapons capability
Government denies the allegations
It was put to Mr Powell that Dr Kelly coming forward was thus "a happy coincidence" in what an e-mail from one of Tony Blair's official spokesmen described as a "game of chicken with the Beeb".
But Mr Powell said Mr Blair's spokesman, Tom Kelly, had been trying to offer the BBC an opportunity to "climb down" in a "dignified way".
Mr Powell said officials decided that the Foreign Affairs Committee should be told Dr Kelly had come forward because "we might be accused of covering things up if this salient piece of information was not made available to the FAC before the report was issued".
Dr Kelly apparently committed suicide within three days of giving evidence to two committees of MPs probing the claim that the government had misused intelligence material in the run-up to war with Iraq.
He was named publicly 36 hours after the Ministry of Defence issued a press release stating that an official had come forward to admit meeting Mr Gilligan.
Although the MoD issued that press release, Mr Powell revealed that he and the prime minister's press chief Alastair Campbell were among those who helped draft it.
Mr Powell said that on the day the press release was issued Sir Kevin Tebbit, the top civil servant at the MoD had brought to Downing Street a draft version of the press release.
Another version was typed out in a meeting with Mr Campbell, prime ministerial spokesmen Godric Smith and Tom Kelly, plus joint intelligence committee chairman
Mr Powell said he told Sir Kevin "expressly he should take this back to the MoD and he should not be bound by it. Certainly not to be issued unless there were entirely and utterly comfortable with it and I repeated this a number of times".
He said they were told at the meeting that Dr Kelly "didn't expect to remain anonymous... it was the view of most of us that in the end, this was going to become public... in
many ways, we were surprised it hadn't become public."
The inquiry was shown an email Mr Powell sent to Mr Campbell and Sir David Manning, the prime minister's then foreign policy adviser, which said the Iraq dossier was "good and convincing for those who are prepared to be convinced", but that it did "nothing to demonstrate a threat, let alone an imminent threat from Saddam".
Earlier Mr Powell recounted how he told Mr Blair on 3 July that an MoD official had come forward to say he had spoken to the BBC reporter at the centre of the "sexed up" dossier row.
He said Mr Blair's reaction was that they should not "rush into" anything, and that it should be dealt with by the MoD in accordance with normal procedure.
"The prime minister wanted to know what we knew of Kelly's views on weapons of mass destruction... and what he would say if he appeared
before the Intelligence and Security Committee or Foreign Affairs Committee."
Mr Powell said Sir Kevin Tebbit said that while Dr Kelly on the whole agreed with the war he "might say some uncomfortable things about some specific items about
which he had views".
Giving evidence, Sir David Manning, who is now British ambassador for the US, said Mr Gilligan's report "was seen as a pretty direct attack on the integrity of the prime minister and officials at Number 10".
He said the sense of it was that they were trying to persuade the chairman of the joint intelligence committee "to massage or revive his conclusions, his recommendations, for political convenience".
Sir David said he saw this as "an unjustified attack" on John Scarlett, chairman of the JIC.
Having sat on that committee himself Sir David said he thought it was "absolutely inconceivable" that if there had been collusion between Number 10 and Mr Scarlett "that the senior figures around the JIC table would agree to this".
The first witness before the Hutton Inquiry on Monday was Pam Teare, head of the Ministry of Defence (MoD) press office, who outlined her view of events leading up to Dr Kelly's name becoming known.
Her evidence showed frequent discussions with Downing Street after Dr Kelly came forward, but she added that the decision to confirm Dr Kelly's identity to journalists was taken at the MoD.
Ms Teare said she was told Dr Kelly's name on 4 July and a contingent press line was prepared about the weapons expert amid fears his name might leak out.
After a second interview of Dr Kelly by senior MoD figures on 7 July, the press release was re-drafted to be more of a pro-active statement, she said, adding that it was her understanding this was then sent to Downing Street.
THIS WEEK'S WITNESSES
Monday: Pam Teare, Ministry of Defence Press Office head; Jonathan Powell, Number 10 chief of staff; David Manning, Tony Blair's foreign policy adviser
Tuesday: David Manning continued; Alastair Campbell, Number 10 communication director
Wednesday: Sir Kevin Tebbit, MoD permanent secretary; Godric Smith and Tom Kelly, prime minister's official spokesmen
Thursday: Newspaper journalists Nick Rufford, James Blitz, Richard Norton-Taylor, Tom Baldwin; Foreign Affairs Committee chairman Donald Anderson; inquiry secretary Lee Hughes
The MoD press notice generated a lot of press interest and Dr Kelly's name was published in newspapers on the morning of 10 July, after the MoD press office decided to confirm his identity to any journalists putting Dr Kelly's name to them.
She said the naming policy was decided at a meeting between her and the deputy chief of defence intelligence Martin Howard and approved by MoD permanent secretary Kevin Tebbit.
She said that one of the reasons for confirming Dr Kelly's identity was to stop other people wrongly being suspected as the BBC's mole.
Ms Teare also said the Ministry of Defence had not been given advance warning that BBC Radio 4's Today programme was to report claims on 29 May that Downing Street had over-ridden intelligence objections with its dossier on Iraq's weapons of mass destruction.