Iraq has become a "battleground" for al-Qaeda, MPs have warned in a report on the war on terrorism.
The Iraq war may have increased the terror threat, says Donald Anderson
The Commons foreign affairs committee says there are too few foreign troops in Iraq and Muslim states should be encouraged to send forces.
The MPs say Iraqi forces are still a long way from being able to ensure security in their country.
The report also says Afghanistan could implode with "terrible consequences" without more foreign troops.
Donald Anderson, the committee's Labour chairman, said the Iraq war might well have increased the terror threat in the short term, although it was too early to assess its long term impact.
The wide-ranging findings are the latest instalment in the MPs' long-running investigation into the war against terrorism.
Among the other findings are:
- The MPs are "very concerned" key information on intelligence and alleged human rights abuses by British troops was withheld from ministers and senior government officials
- The credibility of the UK in Iraq has been damaged by the failure to meet Iraqi expectations on the provision of basic services, such as water and electricity
- People from the UK have been named in documents about alleged corruption in the Oil-for-Food programme in Iraq
- Russian support for Iran's nuclear activities "could risk contributing to the spread of weapons of mass destruction capabilities in the Middle East"
Wednesday's suicide bombing in Iraq, which killed 68 people, underlined the continued security problems in Iraq.
The MPs blame the violence on a range of groups, including former members of Saddam Hussein's regime, local Islamists, criminal gangs and al-Qaeda.
"Iraq has become a 'battleground' for al-Qaeda, with appalling consequences for the Iraqi people.
"However, we also conclude that the coalition's failure to bring law and order to parts of Iraq created a vacuum into which criminal elements and militias have stepped."
The report says the failure of countries other than the US and UK to send significant numbers of troops to Iraq has brought "serious and regrettable consequences".
Mr Anderson said involving more troops from Muslim countries would answer conspiracy theorists who believed the Iraq war was over oil.
He highlighted Saudi Arabia's proposal for a new military force drawn exclusively from Muslim countries.
"The fact is if there were not that support to help the Iraqi government in terms of security, in the short term there is a real danger of Iraq becoming a failed state that would be a danger not only to its own fragmented groups... but to the countries in the region," he said.
The MPs praise the UK government for helping in the formation of Iraq security forces.
But they continue: "We conclude that the Iraqi police and army remain a long way from being able to maintain security."
The Foreign Office acknowledges people sympathetic with al-Qaeda are behind some of the Iraq violence but say it would be wrong to think the terror network would have withered away if there had been no war.
Tony Blair recently denied suggestions that Afghanistan had become a "forgotten" country amid complaints from some of the MPs on the committee who visited the country.
The MPs back Afghan President Hamid Karzai's call for Nato's International Security Assistance Force (ISAF) to be given more resources.
Conservative committee member Sir John Stanley told reporters that security in Afghanistan was "on a knife edge".
Nato must answer President Karzai's call for more help, he said, warning of the consequences of failure.
Afghan opium hits British streets, say the MPs
"We could end up with a situation that everything we have tried to achieve could be set back almost to square one," added Sir John.
The MPs say there are no signs the war against Afghan opium production is being won - in fact, in the short term, things appear to be getting worse.
Committee chairman Donald Anderson said the problem was a clear example of how foreign policy could impact on British streets, where 90% of heroin came from Afghanistan.
The Foreign Office says it is working on the problem but stresses there are long-term social and economic factors which would not change overnight.