The annual report, mandated by Congress, paints a grim picture but officials here nonetheless are claiming some strides in the international struggle against terrorism.

The document, citing figures from the U.S. National Counterterrorism Center, said terrorist attacks worldwide increased by about 25 percent last year compared to 2005 to more than 14,000 total incidents.

Fatalities attributed to those attacks jumped by about 40 per cent to more than 20,000 with about two-thirds of the deaths occurring in Iraq, many of them in suicide bombings targeting large crowds.

The report acknowledges that since the U.S.-led invasion of Iraq in 2003, that country has become what it termed a "rallying cry" for terrorists.

But it says the intervention removed an abusive totalitarian regime that supported regional terrorism, and is allowing a new democratic political process to emerge.

The acting coordinator of the State Department's Office of Counterterrorism, Frank Urbancic, told reporters terrorists would like to make Iraq the kind of safe-haven they once had in Afghanistan.

"If the battle against terrorism isn't in Iraq, it's going to be somewhere else. It started out in Afghanistan. The terrorists are looking for places where they can operate, and that's what they're doing. So we can fight them in Iraq. We can fight them somewhere else," he said.

The report says the number of terror attacks in Afghanistan increased by almost 50 percent last year to nearly 750 incidents and that there was a similar rise in attacks in Africa, many in Sudan's troubled Darfur region.

But attacks were said to have declined in other areas including South and East Asia and in Europe and Russia, where no major terrorist incidents were reported.

Urbancic said in many areas, international cooperation and information-sharing have meant a less permissive operating environment for terrorist groups. "The terrorists are not omnipotent and they are not almighty and they have suffered real losses. We've been very successful against their leadership. We've been very successful in disrupting many of their networks. Not all of things that we've been successful in doing have been able to be made public. But there are great successes that are out there," he said.

The report says Iran remains the most significant state sponsor of terrorism, and continues efforts to destabilize Iraq by providing weapons, training and advice to Iraqi Shia militants.

Four other countries - Syria, Cuba, Sudan and North Korea - are similarly listed as terrorism sponsors and are subject to U.S. sanctions.

However the report credits the Sudanese with increased cooperation in the anti-terrorism struggle and it notes that North Korea is not known to have sponsored any terrorist acts in 20 years.

As part of the six-party agreement on North Korea's nuclear program reached in February, the Bush administration has agreed to begin the process of removing Pyongyang from the U.S. terrorism list.

Libya, which renounced terrorism and weapons of mass destruction in 2003, was taken off the list last year.