The international system for tracking and cutting off terrorist financing has achieved major successes but is fraying seven years after the Sept. 11 attacks, two former Treasury Department officials report. Some U.S. allies in the fight against terrorism pose the weakest links.

U.N. countries froze the assets of some 300 al-Qaida and Taliban members after the 2001 attacks. By early 2004, 112 countries had ratified an international effort to suppress terrorist financing. In addition, al-Qaida is not providing money for operations at past levels. Instead, local cells increasingly are self-funded and send money back to "corporate" al-Qaida.

But international interest in continuing to comply with U.N. enforcement rules is waning, according to the former officials, and terrorists have shifted from official financial institutions, frustrating government efforts to cut off their money streams.

"Few assets are now being frozen and, in fact, many countries still have not put in place the legal framework necessary to take action," the report states. The arms embargo and travel ban against those on the list have not been enforced.

Donors from Saudi Arabia are the chief sources of support for al-Qaida extremist groups, while the Iranian government keeps finance Hezbollah, Hamas and other terrorist groups, according to the report. The research is intended as a road map for the incoming Obama administration to tighten the system and crack down on evolving terrorist financing schemes.

An advance copy of the report, "The Money Trail," was provided to The Associated Press. The authors, Matthew Levitt and Michael Jacobson, are presenting their findings to government agencies, as well as international organizations and think tanks. Leavitt was deputy assistant treasury secretary for intelligence and analysis from 2005 to early 2007, while Jacobson worked in the department's Office of Terrorism and Financial Intelligence. Both are now at the Washington Institute for Near East Policy. They spent 18 months interviewing government and financial executives around the world.

The report found that American ally Kuwait presents a growing problem, and problems extend through the Gulf states.

"Several U.S. officials compared Kuwait's present efforts against terrorist financing to Saudi Arabia's before the May 2003 attack in Riyadh, when the Saudi's first realized the extent of the threat on their hands," the report said, citing interviews with unnamed State and Defense Department officials.

The United Arab Emirates runs its financial monitoring system well "on the surface" but has just two analysts responsible for combating the financing of terrorist activities in one of the Middle East's major financial centers. The UAE government has only a limited understanding of how to "follow the money," an unidentified State Department official told the authors.

Foreign governments and banks, the report says, believe their responsibility ends with adhering to the 40 rules and nine recommended practices established by an international finance group after Sept. 11.

Richard Barrett, the U.N coordinator for the monitoring committee on al-Qaida and Taliban penalties, said Friday the nine recommendations "set everybody up for failure," because no county can live up to them.

Much terrorist cash is funneled through traditional and generally unregulated cash couriers. Carrying vast amounts of cash in and out of Persian Gulf countries is common, and the governments in the region are reluctant to crack down on it, even if they were capable of doing so.

Even the U.S. has been unable to shut down the traditional cash transfer networks, known as hawalas, on its own soil. It is now a criminal offense to operate an unlicensed money remitter in the United States, but just 20 percent of the country's money services bureaus have registered, according to State Department report from March.

One emerging problem is stored value cards, which are similar to debit cards but can be issued anonymously. Current U.S. law does not regulate how much money can be stored on a card, so hundreds of thousands of dollars can be taken out of the country without any declaration.

The report does cite progress, even in the Gulf states:

--For the first time, the UAE has required hawalas to register with the government. As of May, 369 money brokers had submitted applications.

--Saudi Arabia has removed cash collection boxes from mosques to prevent donations from being sent abroad to Islamic extremists.

--Saudi charities now are prohibited from sending money outside the kingdom.

The report also finds terrorist cells have turned to crime to raise funds. According to the report, which cited a French intelligence official, one cell netted about a million euros when a member whose job was to restock bank cash machines robbed several of them. In another French case, a cell blew a hole in the wall of a cash distribution center. Members would have walked away with 4 million euros had the hole not been too small to enter.