Global Policy Forum

By Gaby Hinsliff and Antony Barnett

Tony Blair's claim that Saddam Hussein posed a 'current and serious' threat to Britain is challenged by dramatic new allegations today that Britain's spy chiefs have retracted the intelligence on which it was based.

The supposed proof that the Iraqi dictator was still trying, even in the run-up to war, to produce chemical and biological weapons became crucial to the Prime Minister's case for urgent military action rather than waiting for inspectors to finish their task. Yet, according to a senior intelligence source interviewed by BBC1's Panorama tonight, MI6 has since taken the rare step of withdrawing the intelligence assessment that underpinned the claim that Saddam had continued to produce WMD - an admission that it was fundamentally unreliable.

The charge leaves Blair open to serious questions over why, if the nature of the proof had changed, he did not tell the public that the evidence of WMD was crumbling beneath him. It will increase speculation that he may be forced to disown chunks of the controversial September dossier on banned weapons when Lord Butler publishes his report this week on the handling of intelligence on Iraq.

Yesterday, the Archbishop of Canterbury, Rowan Williams, weighed into the debate, warning that Blair would be judged before God for his actions over Iraq and suggesting he would struggle with his conscience. Asked how Blair would account for himself, Williams answered: 'At the judgment seat.' For Christians, that is the point of entry either to heaven or to hell. 'When you acknowledge that you have taken a risk which has not paid off, which has cost, and that cost does not seem be justified, that's the punishment,' he added.

The fresh blow comes with jitters sweeping Whitehall over the Butler report. Blairites fear that if it is genuinely damaging, it could provoke fresh attempts among Gordon Brown's supporters to force the Prime Minister to stand down. Tensions bubbled to the surface yesterday as it emerged that Blair seriously considered resigning during his most difficult period this year, the fortnight running up to June's local elections, when he came under repeated attack over the war.

Friends dismissed suggestions that cabinet loyalists John Reid, Tessa Jowell, Charles Clarke and Patricia Hewitt had to beg him not to go. But it is clear he did ponder whether he had become a liability, prompting panic among allies who feared Brown would step into his shoes. 'The idea that there was a concerted trek up Downing Street to persuade him to stay is basically wrong,' said one ally. 'But people like Charles and John see a lot of Tony. The newspapers were full of "Blair's going" stories. If they didn't take the opportunity to say "I hope you're not", it would be surprising.'

Amid reports that it was Cherie Blair who actually persuaded her husband to stay on, another aide said decisions on the future were private ones made between the couple. Blair's confidence now appears restored, but it will be tested in the coming week. Butler is expected to make sweeping criticisms of the way the public case for war was handled - and Downing Street's failure to grasp the limitations of intelligence. Tonight's Panorama focuses on secret intelligence produced during the days before the dossier was published. This follows an anguished appeal from Downing Street for more convincing evidence.

After the undisclosed material emerged, John Scarlett - chair of the Joint Intelligence Committee which oversaw the dossier process - hardened up the draft dossier's suggestion that Iraq 'probably' had more recently produced stocks of banned weapons to the assertion that it 'has' continued to produce them. That allowed Blair to claim dramatically that evidence received only 'in recent months' showed Saddam was still generating WMD.

Yet the intelligence underpinning this claim was subsequently withdrawn by MI6, which decided it could not be relied upon, according to the senior intelligence source interviewed by Panorama. This raised serious questions over the quality of the work that went into the dossier, and how far it can now be trusted. Although it is not known exactly when MI6 changed its mind, the revelation will prompt calls for Blair to put the record straight publicly about what he knew, when.

Downing Street yesterday refused to say whether Blair stood by his original claim that Iraq had been a 'current and serious threat', pending Butler's findings. While the Prime Minister confessed last week that WMD might not be found, he has continued to insist that Saddam was still a threat. When he submits his report on Wednesday, Butler is expected to conclude that there were serious errors in British intelligence gathering and assessment - mirroring those of the CIA identified by a US senate inquiry last week.

Scarlett may be criticised for being drawn into the 'magic circle' of Downing Street intimates rather than remaining impartial. However, Blair will fight to keep the man he promoted to the post of head of MI6 once the war was over. There were signs last night that Lord Goldsmith, the Attorney-General, will also escape serious censure over his advice on the legality of the war, despite evidence passed to Butler suggesting he changed his mind as the invasion drew closer. Goldsmith wrote a note to Blair in the run-up to war warning that the invasion could be illegal without a second UN resolution authorising military force, The Observer can reveal, with Whitehall sources admitting the legal advice process was 'messy'.

However, Downing Street is also expected to mount a robust defence of Goldsmith, arguing that government lawyers regularly rehearse both sides of the argument.