The Defense Department (search) should have been more sensitive to concerns about potential government abuses of privacy from its highly criticized research project to predict terrorist attacks, the agency's inspector general has concluded.

In an oversight report, the inspector general's office said the Pentagon's research showed some promise.

But the lack of a formal assessment on the privacy implications for U.S. citizens means the Pentagon "risks spending funds to develop systems that may be neither deployable nor used to their fullest potential without costly revisions and retrofits," the report said.

The inspector general's report, released earlier this month, acknowledged that a privacy assessment was not required by federal law. It did not dispute the Defense Department's response that its research did not violate U.S. privacy laws.

The report said the potential for U.S. police agencies to use the technology investigating citizens "has raised the effort to an unnecessarily heightened level of awareness and concern for both Congress and the public."

Congress previously killed the Pentagon's vast computerized terrorism surveillance project, known as the Total Information Awareness project (search), but renamed the Terrorism Information Awareness after criticism.

But the Defense Advanced Research Projects Agency (search), which conducted the research, has quietly transferred some of its research and tools to other agencies since Congress barred the organization from proceeding with all but four small, non-controversial parts of the research program.

The most controversial research would have involved U.S. analysts studying past terror attacks and imagining future ones by producing a list of telltale actions terrorists might take in preparing attacks. These actions could include recently arriving from the Mideast, taking flying lessons and buying boxcutters.

Supporters speculated that such telltale actions could be detected by scanning a huge number of computer databases -- credit card records, travel data, housing and medical information -- held privately or by governments here and abroad.