SADDAM HUSSEIN is suspected of planning to arm a Palestinian terrorist group with biological weapons to attack either American or Israeli targets.

A Whitehall dossier containing a detailed assessment of Saddam Hussein’s weapons of mass destruction programme, which has been circulated to the Prime Minister and other senior Cabinet ministers, is understood to focus on Iraq’s biological weapons capability.

Details of the dossier came to light as the United Nations rejected a new offer from the Iraqi leader. Kofi Annan, the UN Secretary-General, said that an Iraqi letter calling for a further round of technical talks with Hans Blix, the head weapons inspector, set conditions “at variance” with the demands of the United Nations Security Council.

Using mobile laboratories for their research, the team of scientists working for Saddam are believed to be developing a range of biological agents that can be “delivered” by an aerosol system.

The latest assessment in Washington and London is that Saddam’s plan is to produce a basic weapon that can be used by a terrorist group to attack the Iraqi leader’s enemies, the United States and Israel. In the same way that Iran has funded and trained terrorist groups to carry out attacks from Lebanon against Israel, Saddam, according to the assessment, could be banking on recruiting a Palestinian terrorist group to act on his behalf.

Analysis of US satellite imagery over the past four years has provided sufficient evidence to show what Saddam has been doing since the expulsion of the United Nations weapons inspectors in December 1998. While the Iraqi leader has pursued all elements of his weapons of mass destruction programme, he has made greatest progress in trying to “weaponise” his biological systems, using the mobile research laboratories to try to deceive America’s spy satellites.

The Iraqi leader knows from experience that it is far more difficult to hide work on nuclear weapons because of the substantial infrastructure required. Saddam’s attempts to develop long-range ballistic missiles, capable of reaching America, have also been carefully monitored from space and there is no sign that he has succeeded beyond trying to modify old Russian Scud missiles.

In assessing the threat posed by Saddam’s weapons of mass destruction programme, the emphasis has, therefore, been on his biological warfare projects, which pose as great a threat as nuclear devices and can be developed relatively easily away from the sensors of America’s spy satellites.

The Palestinian connection is now at the heart of intelligence thinking. Despite the belief in some quarters in America that a senior officer in Saddam’s intelligence service met an al-Qaeda terrorist in Prague last year, before September 11, this is given no credence by the CIA, the FBI or by British Intelligence.

Saddam has funded Palestinian extremist groups for many years, and the assessment now is that, with the Middle East in turmoil, the Iraqi leader may see that the best way of taking revenge against the US and Israel is by using a Palestinian organisation as his proxy terrorists.