The Intelligence and Security Committee is to investigate possible links between the London bombers of 7 July and the Muslim cleric Abu Hamza al-Masri.

The committee's inquiry, which started yesterday, will investigate claims the bombers slipped through the net of MI5 and Special Branch police. It will also cover allegations that at least two of the bombers had connections to Abu Hamza's Finsbury Park mosque.

A row erupted yesterday over the failure of the Crown Prosecution Service to prosecute Abu Hamza, amid calls for an judicial inquiry to be carried out. Scotland Yard and the CPS denied that they were at loggerheads.

The Intelligence and Security Committee, which reports direct to the Prime Minister, is set to investigate whether MI5 was responsible for avoiding charges being made against Hamza because they were keeping other terror suspects under surveillance at the mosque.

French intelligence sources were reported yesterday to have complained that they passed intelligence about Abu Hamza to the British authorities but MI5 failed to act until 2003 when the mosque was raided.

The secretive committee of MPs, chaired by former Cabinet minister Paul Murphy, is the only watchdog at Westminster for the security and intelligence services. It will carry out the inquiry into the London bombings, along with a separate investigation into allegations of that the UK has been involved in the so-called "rendition" flights by the CIA of terrorist suspects for the US.

The former Home Secretary David Blunkett may be called to give evidence in secret about how much he was told about Hamza's involvement in terrorism by the intelligence services.

The committee is to report in the summer but there is a growing lack of confidence in its willingness to open the intelligence services to criticism.

David Davis, the shadow Home Secretary, called yesterday for a judicial inquiry into the failure of the Crown Prosecution Service to prosecute Hamza at an earlier stage.

"We do not have an insufficiency of law," said Mr Davis. "We have insufficient resolution to use the law. There should be an independent inquiry by a judge into the failure to prosecute Hamza and it should cover the role played by MI5."

Hamza was under surveillance for 10 years. He was arrested in the UK in 1999 over his links to a terrorist hostage-taking in Yemen. Hamza admitted taking a satellite telephone call from the hostage-takers, including his son, but the authorities decided there was insufficient evidence to charge him.

The US authorities were alerted by British intelligence about an attempt by associates of Hamza to use a farm in Oregon in 1999 as a training camp after MI5 intercepted a fax sent to London.

In his Old Bailey trial, Hamza claimed he was assured by MI5 handlers: "You have freedom of speech. You don't have anything to worry about as long as we don't see blood on the streets."

Some MPs are keen to put MI5 under the spotlight, having been warned by intelligence sources there were no leads to those who may have commanded the London bombers, and that MI5 had failed to penetrate the young militant British Muslims radicalised by the fundamentalist teaching of Hamza and other imams.

The French intelligence authorities were highly critical of British intelligence for tolerating terrorist cells in London in the early 1990s