The inquiry heard Whitehall was told there was no extra cash for rebuilding
The Treasury refused to release extra funds for the reconstruction of Basra, the Iraq war inquiry has been told.
Dominic Asquith, the former Foreign Office director for Iraq, said more money was requested to help rebuild the southern Iraqi city.
But Mr Asquith said government departments were told they would have to find the cash from existing budgets.
This was despite the fact that rebuilding was supposed to be a high priority for ministers, he added.
Mr Asquith, who held the post at the Foreign Office from 2004 before becoming ambassador to Baghdad in 2006, said: "The direction was that this was a high priority but we weren't being given the extra resources to deliver.
November-December: Former top civil servants, spy chiefs, diplomats and military commanders to give evidence
January-February 2010: Tony Blair, Gordon Brown and other politicians expected to appear before the panel
March 2010: Inquiry expected to adjourn ahead of the general election campaign
July-August 2010: Inquiry expected to resume
Report set to be published in late 2010 or early 2011
"It was left to Whitehall departments to put the case to the Treasury for resources to cover this to which the answer was: 'There are no resources'."
Mr Asquith described the situation as "extremely frustrating".
"As soon as you built a water plant or put up an electricity sub-station it was frequently blown up," he said.
Earlier, Lieutenant General Sir Anthony Pigott, who was deputy chief of the defence staff (commitments), told the inquiry the initial focus was on getting Saddam Hussein to give up WMDs and about not "regime change".
But he said it became clear the UK would want to play a major role if it came to military action.
"If there wasn't anything meaty, it was a long way to go to do nothing, you know, meaty," he said.
He added that by doing so it would enhance the UK's standing with US forces.
Gen Pigott said: "You buy that on your contribution and your willingness to put - not just boots on the ground - people in danger. They know you are a serious player."
Major General David Wilson said the UK had tried to get reassurances from the US that preparations were in place for a post-war Iraq.
Maj Gen Wilson was the senior British military adviser at US Central Command in Florida where the invasion was planned.
He told the inquiry: "The UK delegation made the point early on. I personally didn't think it got any entirely satisfactory answer."
The inquiry was adjourned until Monday.