Speaking at a graduation ceremony at Columbia University's School of International and Public Affairs in New York on Monday, Soros said the invasion of Iraq could not be justified.
The billionaire further charged that recently published photographs of US troops abusing Iraqi prisoners were "not a case of a few bad apples, but a pattern tolerated and even encouraged by the authorities."
"We claim to be liberators, but we turned into oppressors."
Soros has been a staunch critic of the Republican administration's policy on Iraq and has donated or pledged at least $12.5 million to the Democratic campaign to defeat Bush in the November elections.
Soros concluded that the White House position in Iraq became "unsustainable" when it began handing power to local militias.
"This prepares the ground for religious and ethnic divisions and possible civil war in the manner of Bosnia rather than Western-style democracy," he said.
The billionaire suggested that the US not fight terrorism by creating new victims.
"By succumbing to fear, we are doing the terrorists' bidding - we are unleashing a vicious circle of violence," he said.
"If we go on like this, we may find ourselves in a permanent state of war."