PALO ALTO, Calif. -- From a Silicon Valley office strewn with bean-bag chairs, a group of twenty-something software engineers is building an unlikely following of terrorist hunters at U.S. spy agencies.

One of the latest entrants into the government spy-services marketplace, Palantir Technologies has designed what many intelligence analysts say is the most effective tool to date to investigate terrorist networks. The software's main advance is a user-friendly search tool that can scan multiple data sources at once, something...