Anderson has reviewed the role of the security services in the four terrorist attacks in the United Kingdom this year, including those at the Manchester Arena and London Bridge.
He said the home secretary, Amber Rudd, told her colleagues that the pace of attack planning had increased significantly this year, and insisted that ministers were putting pressure on social media companies to remove terrorist material and progress was being made.
But he says MI5 had obtained intelligence in the months before the attack that might have led to an investigation if it had been better understood.
"With the benefit of hindsight, intelligence was misinterpreted in 2017", said Anderson. The report covered attacks in Westminster, Manchester, London Bridge and Finsbury Park, which collectively claimed the lives of 36 people.
Butt had been investigated for two years.
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The report's author, David Anderson, said it was conceivable the attack by Salman Abedi on May 22 could have been avoided had "cards fallen differently". "But though investigative actions were for the most part sound, many learning points have emerged", said Anderson.
MI5 has previously said that 13 terror attacks were prevented in the past four years, a third of which was helped by public information.
It comes shortly after Andrew Parker, the director general of MI5, briefed the government and told them that up to nine planned terrorist attacks had been foiled in the United Kingdom during the past year. "In particular, MI5 and the police have identified the need to use data more effectively, to share knowledge more widely, to improve their own collaboration and to assess and investigate terrorist threats on a uniform basis, whatever the ideology that inspires them", Anderson adds.
Police vehicles are seen outside the Manchester Arena, where US singer Ariana Grande had been performing in Manchester, northern England, May 23, 2017.