The leaders of a Senate panel said Thursday that the Defense and State departments must work more closely together to avoid repeating multi-million dollar mistakes in the reconstruction of Iraq.

Sen. Joseph Lieberman, chairman of the Homeland Security Committee, and Sen. Susan Collins, R-Maine, said they were considering legislation to create a commission to help fix problems after investigators found confusion and disarray in the four-year-old reconstruction effort.

"Where we've seen failure is when the U.S. government failed to plan projects carefully and then failed to keep a close watch over contractors and now we've seen billions of dollars wasted — a cost measured not just in dollars but in the undermining of the overall U.S. mission in these war-torn countries," said Lieberman, D-Conn.

Stuart Bowen Jr., the special inspector general for Iraq reconstruction, released his latest report on the lessons learned in a war and reconstruction effort that has cost taxpayers nearly $400 billion. It detailed a series of mistakes, delays and missed opportunities.

Characterizing the U.S. effort as chaotic and poorly managed, Bowen found numerous problems — from a lack of strategy and unclear lines of authority to confusion and disarray between Defense and State.

"Anyone who has spent appreciative time in the Iraq reconstructive effort understands the tension that exists between the two," he said, who urged strengthening joint staff between the two departments.

At the same time, Bowen testified that, after a recent trip to Iraq, he was "cautiously optimistic" that Baghdad's security might be improving.

David Satterfield, senior adviser to Secretary of State Condoleezza Rice, said his department has diligently been working to improve cooperation between the departments and increased coordination with new Defense Secretary Robert Gates.

"I believe it's wrong to assume ... that there are not individual, anecdotal personality issues," he said. "But the jointness is greater than that."

Satterfield also said the department had stepped up oversight of contracts to crack down on waste and abuse even as it seeks to increasingly pass along the responsibility for reconstruction to the Iraqis themselves.

"We see 2007 as a critical bridge period to Iraqi self-sufficiency so their money can be spent rather than U.S. taxpayer money," he said.

Bowen's office released the 157-page audit Thursday. Among the findings:

— A Defense Department agency charged with running the reconstruction effort never developed a fully coordinated plan upon members' arrival in 2003, leading to confusion and duplication of effort. "We were bumping into one another as we tried to solve the same problem," a former agency official is quoted as saying.

— Money flowed to reconstruction projects before procedures, training and staffing were fully in place, resulting in a "lack of clearly defined authorities" and little accountability in terms of how dollars were being spent.

— Only three contracting officers were initially sent to Baghdad to oversee spending of reconstruction dollars. As a result, some contract files were in disarray or missing while others were stored on personal e-mail accounts and individual hard drives.

— There was little oversight to ensure that Iraqi companies hired to do reconstruction work operated according to international standards. In a case involving the Baghdad Police Academy, the Iraqi subcontractor used cement joints to seal wastewater pipes, a practice used by Iraqi construction firms. The cement joints leaked, causing major interior damage as wastewater leaked through floors, ran down halls and filled ceiling lights.

Earlier this year, federal investigators determined that the Bush administration had squandered as much as $10 billion in reconstruction aid in part because of poor planning and contract oversight, resulting in contractor overcharges and unsupported expenses.