Hundreds of people are being kept under surveillance as part of the battle against terrorism, Home Secretary Charles Clarke has told MPs.
Mr Clarke's powers were reviewed after the bombings
Questioned by the cross-party home affairs committee, Mr Clarke also revealed he had approved using a control order against a UK citizen.
But he has lifted orders - which can include house arrest or other restrictions - on nine other suspects.
Control orders are now being used against only three suspects.
Mr Clarke has rejected three requests for the terms of the orders to be changed.
The MPs also questioned Metropolitan Police chief Sir Ian Blair, London Mayor Ken Livingstone and Muslim Council of Britain chief Sir Iqbal Sacranie at the special session.
They did not go into details about the bombing investigations or the shooting by police of innocent Brazilian Jean Charles de Menezes.
Earlier this year, Prime Minister Tony Blair said hundreds of people were plotting attacks in the UK.
Asked about those comments, Mr Clarke said: "There are certainly hundreds of individuals who we have been watching very closely and continue to watch extremely closely.
"The word plotting is an interesting word. There are certainly hundreds of people who we believe need to be very closely surveyed because of the threat they offer."
Mr Clarke also told the MPs the Metropolitan Police had faced £60m in extra costs after the attacks, up to 1 September.
Talks were happening in government about the extent to which Whitehall would foot that bill, he said.
About two months before the bombings, the official terrorism threat level was lowered slightly from "severe general" to "substantial".
Committee chairman John Denham asked why the Joint Terrorism Analysis Centre had been wrong when it said there was not a single terrorist group which had both the intent and the capability to mount an attack.
Mr Clarke said intelligence was an effort to understand what was happening - it was not the same as knowing "what is out there".
He said the resources of the security services were being increased and new partnerships forged with overseas intelligence networks.
And later this week he will publish the full details of proposed new laws for tackling terrorism.
Long term threat
The home secretary refused to put a timescale on how long the UK would face the terrorist threat, but said it could be a "considerable time".
Mr Clarke said there had been a "marginal" shift since the 7 July bombings towards believing those behind the attacks had international links.
But such links had always been part of the investigations.
Mr Clarke said he did not believe "shoot to kill" was the right way to describe the controversial police policy.
He said: "The objective of the policy is not to go around killing people. The objective of the policy is to protect the public against any particular threat of criminality that can arise."
London Mayor Ken Livingstone later told the MPs: "Over four years we've been incredibly good at actually stopping people getting through and we eventually knew we would fail," he said.
"I suspect we will catch many others before we fail again."
The mayor said he was looking to see if anyone can develop "sniffer technology" against explosives.
But the airflow caused by Tube trains was a major obstacle to such systems, he said.
There would be 100% closed circuit television coverage on London's buses by the end of the year - up from the present 95%.