Mr Straw said that the report from the head of the UN inspectors, Hans Blix, was "damning and disturbing" and showed the Iraqi regime was responding "with a consistent pattern of concealment and deceit".
He told reporters that it was now "inescapable that Iraq is in material breach" of UN resolution 1441 - this triggers a discussion on further steps, including military action, at the UN Security Council.
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Iraq would be making the most profound mistake if it thought that it could go on with its game-playing any longer
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Jack Straw
Foreign Secretary
Mr Straw made the comments as he announced he was publishing a list of 10 key questions from Dr Blix's report "so that the British public is able to judge for itself".
These include asking how Iraq accounts for 6,500 missing bombs which could carry up to 1,000 tonnes of deadly chemical agent and how Saddam answers the charge that Iraq may have retained anthrax and weaponised the deadly VX nerve agent.
Mr Straw insisted that war was not inevitable, but the government "fervently wish" that Iraq would disarm in a peaceful manner.
"What Iraq has to understand is that time is running out and if it doesn't comply with the requirements of the international community ... then serious consequences will follow," he said.
Anthrax
On Monday chief weapons inspector Dr Hans Blix told the security council Iraq had given inspectors access to important sites but not co-operated "on substance".
Mr Straw gave his reaction after agreeing a new warning to Saddam Hussein about the need to disarm with European Union leaders in Brussels.
"The situation is very serious. I think most people who are not familiar with the information about Iraq's malpractices will have been very shocked by what they discovered from Dr Blix's report," he told BBC Radio 4's Today programme.
Mr Straw's comments came as a motion against war with Iraq was defeated by 16 votes to 10 by Labour's national executive (NEC).
NEC member Mark Seddon, who tabled the motion, told Today: "The opposition in the country to this war is so profound that this marrying to a very right-wing, hawkish, Republican administration is seen by many people as very dangerous."
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These few months would be a valuable investment in peace
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Mohammed ElBaradei
International Atomic Energy Agency
Mr Blair will discuss the reports when he meets US President George Bush later this week, ahead of another UN Security Council report on 14 February.
Iraq insists it has co-operated fully and is willing to discuss any remaining issues with Dr Blix.
In what was seen as an appeal for more time, Dr Blix said proof not presumptions would resolve whether Iraq had banned substances.
Mohammed ElBaradei, head of the International Atomic Energy Agency, said no banned nuclear activity had been discovered.
He argued a few months more of inspections could "provide credible assurance that Iraq has no nuclear weapons programme".
The two inspection chiefs are to be given a list of questions for iraq to answer at a Security Council session on Wednesday.
Attitude change
Conservative shadow foreign secretary Michael Ancram said a peaceful resolution to the crisis would only come if Iraq changed its tone and began to co-operate.
The US says the inspection reports show "Iraq has an active programme of denial and deception".
But Labour MP Alan Simpson said both the inspection chiefs had been forthright in making a "compelling case" for more time, not troops.
'Smoking gun unnecessary'
That demand for more time was echoed by Liberal Democrat foreign affairs spokesman Menzies Campbell.
Earlier, Mr Blair's official spokesman said it was "now up to Saddam to prove his innocence".
Mr Blair discussed the Iraq crisis in a 25-minute telephone call with Russian president Vladimir Putin on Monday.
A spokesman for the Russian leader said he had told Mr Blair weapons inspectors must be allowed to continue with their work.