The Jaffee Centre for Strategic Studies at Tel Aviv University said instead of striking a blow against Islamist movements, the war "created momentum for many terrorist elements, but chiefly al-Qaida and its affiliates".
The US-led invasion of Iraq in March 2003 became a distraction in the international war against terrorism, the thinktank said in its annual Middle East Strategic Balance report for 2003-2004, released on Monday.
Bush has called the war in Iraq an integral part of the "war on terrorism", saying that deposed Iraqi leader Saddam Hussein hoped to develop unconventional weapons and could have given them to Islamist groups.
Jaffee Centre director Shai Feldman said that the vast amount of money and effort the US poured into Iraq has deflected assets from other conflict centres, such as Afghanistan.
Al-Qaida and its allies should have
been the focus, the thinktank says
Intelligence expenditures made necessary by the large US troop deployment in Iraq "has to be at the expense of being able to follow strategic dangers in other parts of the world", he said.
Shlomo Brom, a retired Israeli army general, said the US effort was misdirected on the strategic level.
If the goal in the "war against terrorism is not just to kill the mosquitoes but to dry the swamp", he said, now it's quite clear that Iraq "is not the swamp".
Instead, he said, the Iraq campaign is having the opposite effect, drawing fighters from other parts of the world to join the "battle against the occupiers".
"On a strategic level as well as an operational level, the war in Iraq is hurting the war on international terrorism," Brom concluded.
No Palestinian link
In other findings, Jaffee Centre experts disagreed with the Israeli government's statements that its four-year-old ongoing struggle against Palestinian resistance fighters is part of the global war on terrorism.
Palestinian fighters are not linked
to al-Qaida, the report says
Yoram Schweitzer, who wrote the chapter about the Iraq war, said the local conflict is a "national struggle" while international Islamist groups such as al-Qaida target not only Israel but also the entire Western world.
After interviewing Palestinian fighters, including some in prison, Schweitzer said they do not consider themselves part of the al-Qaida campaign.
"Many of them are critical of al-Qaida and its methods," he said.
The Jaffee report found that Israel has succeeded in reducing Palestinian violence against Israelis.
Feldman said the motivation of Palestinian militants to attack the country remained unchanged, but praised the work of military intelligence in preventing many of those planned attacks from being carried out.
The report includes intelligence breakdowns of the military forces and their capabilities in the Middle East, as well as analyses of regional issues.