Iraq has become a "battleground" for al-Qaeda with "appalling consequences" for the Iraqi people, MPs have warned.
The Iraq war may have increased the terror threat, says Donald Anderson
The Commons foreign affairs committee says the failure to establish law and order has created a "vacuum" into which militias and criminals have poured.
In a report on the war on terrorism they urge ministers to encourage Muslim countries to send forces.
The wide-ranging report also questions whether there needs to be new rules on the use of pre-emptive military force.
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 report is the latest instalment of the MPs' long-running investigation into the war against terrorism.
Among the other findings are:
- Afghanistan might "implode" with "terrible consequences" if more international troops are not sent
- 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
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 ex-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.
"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 stated 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 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 says it would be wrong to think the terror network would have withered away if there had been no war.
The MPs also question whether international law needs to be changed to take account of the new terror threat.
Under current laws, nations can use pre-emptive action but only against an imminent threat.
The report says that may need reassessing, but care should be taken to make sure new laws cannot be abused by states pursuing their own interests.
It argues the government should "set out how, in the event of the legitimisation of the doctrine of anticipatory self defence, it will persuade its allies to limit the use of the doctrine to a 'threat of catastrophic attack'".
Afghanistan is another country which seriously worries the MPs, with Conservative committee member Sir John Stanley saying its security situation was "on a knife edge".
The MPs also say the war against Afghan drugs, which account for 90% of heroin on British streets is being lost.