MI5 did not have enough staff to adequately follow up terrorist leads in the run-up to the 7 July bombings in London.
A report by the Intelligence and Security Committee said the intelligence agency's teams were stretched almost to breaking point and although they knew of the terrorist ringleader Mohammad Sidique Khan before the attacks, they did not have the resources to deal with the information.
MI5 employs 3,500 officers, but the committee said it would need "several hundred thousand" to provide comprehensive intelligence coverage.
Taking into account these resourcing and operational pressures, the committee said the decision not to follow Khan after he had initially appeared on radar was understandable.
The committee's chairman, Kim Howells, said: "Hindsight is a wonderful thing. Those judgements were made at the time and, having gone in detail through all of the details, we cannot find any reason to criticise the actions that were taken at the time."