Sources in the office of UN Secretary General Kofi Annan confirmed last night that the spying operation had already been discussed at the UN's counter-terrorism committee and will be further investigated.

The news comes as British police confirmed the arrest of a 28-year-old woman working at the top secret Government Communications Headquarters (GCHQ) on suspicion of contravening the Official Secrets Act.

Last week The Observer published details of a memo sent by Frank Koza, Defence Chief of Staff (Regional Targets) at the US National Security Agency, which monitors international communications. The memo ordered an intelligence 'surge' directed against Angola, Cameroon, Chile, Bulgaria and Guinea with 'extra focus on Pakistan UN matters'. The 'dirty tricks' operation was designed to win votes in favour of intervention in Iraq.

The Observer reported that the memo was sent to a friendly foreign intelligence agency asking for help in the operation. It has been known for some time that elements within the British security services were unhappy with the Government's use of intelligence information.

The leak was described as 'more timely and potentially more important than the Pentagon Papers' by Daniel Ellsberg, the most celebrated whistleblower in recent American history.

In 1971, Ellsberg was responsible for leaking a secret history of US involvement in Vietnam, which became known as 'the Pentagon Papers', while working as a Defence Department analyst. The papers fed the American public's hostility to the war.

The revelations of the spying operation have caused deep embarrassment to the Bush administration at a key point in the sensitive diplomatic negotiations to gain support for a second UN resolution authorising intervention in Iraq.

White House spokesman Ari Fleischer and Defence Secretary Donald Rumsfeld were both challenged about the operation last week, but said they could not comment on security matters.

The operation is thought to have been authorised by US National Security Adviser Condoleezza Rice, but American intelligence experts told The Observer that a decision of this kind would also have involved Donald Rumsfeld, CIA director George Tenet and NSA chief General Michael Hayden.

President Bush himself would have been informed at one of the daily intelligence briefings held every morning at the White House.

Attention has now turned to the foreign intelligence agency responsible for the leak. It is now believed the memo was sent out via Echelon, an international surveillance network set up by the NSA with the cooperation of GCHQ in Britain and similar organisations in Australia, New Zealand and Canada.

Wayne Madsen, of the Electronic Privacy Information Centre and himself a former NSA intelligence officer, said the leak demonstrated that there was deep unhappiness in the intelligence world over attempts to link Iraq to the terrorist network al-Qaeda.

'My feeling is that this was an authorised leak. I've been hearing for months of people in the US and British intelligence community who are deeply concerned about their governments "cooking" intelligence to link Iraq to al-Qaeda.'

The Observer story caused a political furore in Chile, where President Ricardo Lagos demanded an immediate explanation of the spying operation. The Chilean public is extremely sensitive to reports of US 'dirty tricks' after decades of American secret service involvement in the country's internal affairs. In 1973 the CIA supported a coup that toppled the democratically-elected socialist government of Salvador Allende and installed the dictator General Augusto Pinochet.

President Lagos spoke on the telephone with Prime Minister Tony Blair about the memo last Sunday, immediately after the publication of the story, and twice again on Wednesday. Chile's Foreign Minister Soledad Alvear also raised the matter with Foreign Secretary Jack Straw.

Chile's ambassador to Britain Mariano Fernández told The Observer: 'We cannot understand why the United States was spying on Chile. We were very surprised. Relations have been good with America since the time of George Bush Snr.' He said that the position of the Chilean mission to the UN was published in regular diplomatic bulletins, which were public documents openly available.

While the bugging of foreign diplomats at the UN is permissible under the US Foreign Intelligence Services Act, it is a breach of the Vienna Convention on Diplomatic Relations, according to one of America's leading experts on international law, Professor John Quigley of Ohio University.

He says the convention stipulates that: 'The receiving state shall permit and protect free communication on the part of the mission for all official purposes... The official correspondence of the mission shall be inviolable.'

Gloucestershire police confirmed last night that a 28-year-old woman was arrested last week on suspicion of contravening the Official Secrets Act. The woman, from the Cheltenham area, has been released on police bail pending further inquiries. More arrests are expected.

A top-secret memo from the National Security Agency, which monitors communications around the world, was passed to this newspaper by British security sources who objected to being asked to aid the American operation. The leak marks a serious breach between the Blair government and elements of the intelligence community opposed to using British security resources to help the US drive towards war.

Officials at GCHQ, the electronic surveillance arm of the British intelligence service, were asked by the Americans to provide valuable information from 'product lines', intelligence jargon for phone taps and e-mail interception. The document was circulated among British intelligence services before being leaked.

A GCHQ spokesman confirmed last night that the woman was an employee.

They call it Dictionary, and its job is to screen the massive flows of intercepted data and look for groups of words of significance to whatever the analysts are seeking.

When those groups come up, the software alerts the analysts who then begin a review of all the intercepted communication in their search for hard intelligence.

It is a painstaking and rigorous procedure that is these day shared among experts across the globe: from Britain, Canada, Australia and New Zealand.

On 31 January a memo was sent from the National Security Agency in Maryland from one Frank Koza at GCHQ's American sister listening operation.

The memo was blunt. It asked the recipients at GCHQ to help with an American mission: to analyse US intercepts of the homes and offices of certain UN delegations to the Security Council.

It singled out key members of the UNSC (Angola, Cameroon, Guinea, Bulgaria, Chile and Pakistan) for special attention, but said the operation should stretch to all delegations (except Britain and America, of course) if that proved necessary to give the US an edge.

The United States was looking for any information that could help Koza's government put pressure on these countries to vote for a US and UK-sponsored resolution that would authorise a war against Iraq.

What Koza never suspected was that someone outside the NSA would be so shocked by his request to help with a dirty tricks campaign that they would leak his memo, or that it would end up in the hands of The Observer. But by last week that memo had led to the biggest spy-hunt since the David Shayler affair.

In the Maryland headquarters of the NSA, incredulity at the leak - and the knowledge that someone in one of its partner intelligence organisations had deliberately disclosed evidence of the operation at a time designed to cause severe damage to America's attempts to secure a second Security Council resolution authorising war against Iraq - turned to fury.

The leak, however, raises as many questions as the number of secrets it reveals. The most pressing of these remains: why would a career intelligence officer risk discovery, ignominy and imprisonment to leak it in the first place?

The answer to that question is to be found not simply in the conscience of the individual intelligence officer, but in a wider conflict between the intelligence community on both sides of the Atlantic and their political masters.

In the imposing glass-fronted riverside headquarters of MI6 in London, as in the Cheltenham headquarters of GCHQ, the several thousand employees of the Secret Intelligence Service stick to a view that some may regard as arcane in the individualism of the modern world.

They hold fast to a credo that they are the real guardians of the UK, that while politicians may come and go, their work is eternal. 'The intelligence professionals feel that they stand somewhat above the vagaries of politics,' said one close observer familiar with their work.

'But what has happened is that they have come into conflict with the politicians over Iraq. They feel that their long history is in danger of being undermined by the uses made of the intelligence product by Number 10, and that the way information has been spun has corroded the public's belief in what they do.'

This tension has been visible beneath the surface for months, as intelligence officials have briefed against the more outrageous claims made by the Government.

The tensions between the intelligence services and the Downing Street spin operation date back to last summer, when the first so-called secret dossier on Iraq, detailing Saddam's armoury of weapons of mass destruction, was being finalised in the autumn.

The team working on it - led by Tony Blair's director of communications Alastair Campbell, head of homeland security David Omand, Downing Street foreign policy adviser Sir David Manning, and representatives of MI5, MI6 and GCHQ - began by deciding what messages derived from intelligence material should be put across, and then attempting to find publicly available information backing them up.

The September dossier went through two or three final drafts, with Campbell writing it off each time, and had already resulted in fairly serious rows between Campbell, Omand and Stephen Lander, then head of M15.

The essence of the disagreement is said to have been that intelligence material should be presented 'straight', rather than spiced up to make a political argument.

The problem with a second dossier on Saddam's record of deception, drawn up in January when it began to become obvious that Hans Blix's work was not making an incontrovertible case for war, was that it was completed with far less time for cross-checking.

The result was the infamous 'dodgy dossier', reliant on a plagiarised PhD thesis to make its argument that Saddam was a threat, and admissions from Downing Street that it should have acknowledged its sources.

'The dossier was unhelpful,' said one officer. 'It undermines the very real message that we are trying to get across - to persuade the public that Saddam Hussein is a risk, but for many complicated reasons.

'There is a feeling that there is something reckless about some of the people around Tony Blair - that they are dangerous.

But an intelligence expert on the National Security Agency said yesterday that a memo leaked to Britain's Observer newspaper about the alleged operation looked "authentic".

James Bamford, author of two books on the NSA, also believed that the agency would have sent the memo to Australia's electronic spying agency, DSD. The memo outlines an aggressive effort to target six UN Security Council members - Angola, Cameroon, Chile, Bulgaria, Guinea and Pakistan - all non-permanent members who joined the Security Council in January. It appears to be written to the NSA's allied agencies overseas but the "recipients" have been deleted.

Mr Bamford says the agency had a long history of spying on the UN. He said the memo, if it is authentic, looks as if it was sent to the British electronic spy agency, GCHQ, which works with the NSA, and was probably copied to its Australian counterpart, DSD. "Australia would have been a recipient of it, but the main focus would have been directed at the UK with their access to Africa. Plus they're trying to get the same result as the US."

The memo, dated January 31, notes that the recipients could hear more about the request "in formal channels", implying either agency heads or government channels would take up the issue.

UN delegations from France and Germany had no comment. A British mission spokesperson referred the Herald to the US Government - neither the State Department nor White House had any comment.