Onthe morning of 9 February 2004, The New York Times carried an exclusive and alarming story. The paper's Baghdad correspondent, Dexter Filkins, reported that US officials had obtained a 17-page letter, believed to have been written by the notorious terrorist Abu Musab al Zarqawi to the "inner circle" of al-Qa'ida's leadership, urging them to accept that the best way to beat US forces in Iraq was effectively to start a civil war.

The letter argued that al-Qa'ida, which is a Sunni network, should attack the Shia population of Iraq: "It is the only way to prolong the duration of the fight between the infidels and us. If we succeed in dragging them into a sectarian war, this will awaken the sleepy Sunnis."

Later that day, at a regular US press briefing in Baghdad, US General Mark Kimmitt dealt with a string of questions about The New York Times report: "We believe the report and the document is credible, and we take the report seriously... It is clearly a plan on the part of outsiders to come in to this country and spark civil war, create sectarian violence, try to expose fissures in this society." The story went on to news agency wires and, within 24 hours, it was running around the world.

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There is very good reason to believe that that letter was a fake – and a significant one because there is equally good reason to believe that it was one product among many from a new machinery of propaganda which has been created by the United States and its allies since the terrorist attacks of September 2001.

For the first time in human history, there is a concerted strategy to manipulate global perception. And the mass media are operating as its compliant assistants, failing both to resist it and to expose it.

The sheer ease with which this machinery has been able to do its work reflects a creeping structural weakness which now afflicts the production of our news. I've spent the last two years researching a book about falsehood, distortion and propaganda in the global media.

The "Zarqawi letter" which made it on to the front page of The New York Times in February 2004 was one of a sequence of highly suspect documents which were said to have been written either by or to Zarqawi and which were fed into news media.

This material is being generated, in part, by intelligence agencies who continue to work without effective oversight; and also by a new and essentially benign structure of "strategic communications" which was originally designed by doves in the Pentagon and Nato who wanted to use subtle and non-violent tactics to deal with Islamist terrorism but whose efforts are poorly regulated and badly supervised with the result that some of its practitioners are breaking loose and engaging in the black arts of propaganda.

Like the new propaganda machine as a whole, the Zarqawi story was born in the high tension after the attacks of September 2001. At that time, he was a painful thorn in the side of the Jordanian authorities, an Islamist radical who was determined to overthrow the royal family. But he was nothing to do with al-Q'aida. Indeed, he had specifically rejected attempts by Bin Laden to recruit him, because he was not interested in targeting the West.

Nevertheless, when US intelligence battered on the doors of allied governments in search of information about al-Q'aida, the Jordanian authorities – anxious to please the Americans and perhaps keen to make life more difficult for their native enemy – threw up his name along with other suspects. Soon he started to show up as a minor figure in US news stories – stories which were factually weak, often contradictory and already using the Jordanians as a tool of political convenience.

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Then, on 7 October 2002, for the first time, somebody referred to him on the record. In a nationally televised speech in Cincinnati, President George Bush spoke of "high-level contacts" between al-Q'aida and Iraq and said: "Some al-Q'aida leaders who fled Afghanistan, went to Iraq. These include one very senior al-Q'aida leader who received medical treatment in Baghdad this year, and who has been associated with planning for chemical and biological attacks."

This coincided with a crucial vote in Congress in which the president was seeking authority to use military force against Iraq. Bush never named the man he was referring to but, as the Los Angeles Times among many others soon reported: "In a speech [on] Monday, Bush referred to a senior member of al-Q'aida who received medical treatment in Iraq. US officials said yesterday that was Abu al Musab Zarqawi, a Jordanian, who lost a leg during the US war in Afghanistan."

Even now, Zarqawi was a footnote, not a headline, but the flow of stories about him finally broke through and flooded the global media on 5 February 2003, when the Secretary of State, Colin Powell, addressed the UN Security Council, arguing that Iraq must be invaded: first, to stop its development of weapons of mass destruction; and second, to break its ties with al-Q'aida.

Powell claimed that "Iraq today harbours a deadly terrorist network headed by Abu Musab al Zarqawi"; that Zarqawi's base in Iraq was a camp for "poison and explosive training"; that he was "an associate and collaborator of Osama bin Laden and his al-Q'aida lieutenants"; that he "fought in the Afghan war more than a decade ago"; that "Zarqawi and his network have plotted terrorist actions against countries, including France, Britain, Spain, Italy, Germany and Russia".

Courtesy of post-war Senate intelligence inquiries; evidence disclosed in several European trials; and the courageous work of a handful of journalists who broke away from the pack, we now know that every single one of those statements was entirely false. But that didn't matter: it was a big story. News organisations sucked it in and regurgitated it for their trusting consumers.

So, who exactly is producing fiction for the media? Who wrote the Zarqawi letters? Who created the fantasy story about Osama bin Laden using a network of subterranean bases in Afghanistan, complete with offices, dormitories, arms depots, electricity and ventilation systems? Who fed the media with tales of the Taliban leader, Mullah Omar, suffering brain seizures and sitting in stationery cars turning the wheel and making a noise like an engine? Who came up with the idea that Iranian ayatollahs have been encouraging sex with animals and girls of only nine?

Some of this comes from freelance political agitators. It was an Iranian opposition group, for example, which was behind the story that President Mahmoud Ahmadinejad was jailing people for texting each other jokes about him. And notoriously it was Iraqi exiles who supplied the global media with a dirty stream of disinformation about Saddam Hussein.

But clearly a great deal of this carries the fingerprints of officialdom. The Pentagon has now designated "information operations" as its fifth "core competency" alongside land, sea, air and special forces. Since October 2006, every brigade, division and corps in the US military has had its own "psyop" element producing output for local media. This military activity is linked to the State Department's campaign of "public diplomacy" which includes funding radio stations and news websites. In Britain, the Directorate of Targeting and Information Operations in the Ministry of Defence works with specialists from 15 UK psyops, based at the Defence Intelligence and Security School at Chicksands in Bedfordshire.

In the case of British intelligence, you can see this combination of reckless propaganda and failure of oversight at work in the case of Operation Mass Appeal. This was exposed by the former UN arms inspector Scott Ritter, who describes in his book, Iraq Confidential, how, in London in June 1998, he was introduced to two "black propaganda specialists" from MI6 who wanted him to give them material which they could spread through "editors and writers who work with us from time to time".

In interviews for Flat Earth News, Ritter described how, between December 1997 and June 1998, he had three meetings with MI6 officers who wanted him to give them raw intelligence reports on Iraqi arms procurement. The significance of these reports was that they were all unconfirmed and so none was being used in assessing Iraqi activity. Yet MI6 was happy to use them to plant stories in the media. Beyond that, there is worrying evidence that, when Lord Butler asked MI6 about this during his inquiry into intelligence around the invasion of Iraq, MI6 lied to him.

Ultimately, the US has run into trouble with its propaganda in Iraq, particularly with its use of the Zarqawi story. In May 2006, when yet another of his alleged letters was handed out to reporters in the Combined Press Information Centre in Baghdad, finally it was widely regarded as suspect and ignored by just about every single media outlet.

Arguably, even worse than this loss of credibility, according to British defence sources, the US campaign on Zarqawi eventually succeeded in creating its own reality. By elevating him from his position as one fighter among a mass of conflicting groups, the US campaign to "villainise Zarqawi" glamorised him with its enemy audience, making it easier for him to raise funds, to attract "unsponsored" foreign fighters, to make alliances with Sunni Iraqis and to score huge impact with his own media manoeuvres. Finally, in December 2004, Osama bin Laden gave in to this constructed reality, buried his differences with the Jordanian and declared him the leader of al-Q'aida's resistance to the American occupation.

JONATHAN GRUN, EDITOR,PRESS ASSOCIATION

The Press Association's wire service has a long-standing reputation for its integrity and fast, fair and accurate reporting. Much of his criticism is anonymously sourced – which is something we strive to avoid.

ANDREW MARR, BROADCASTER AND JOURNALIST

Thanks to the internet there's a constant source of news stories pumping into newsrooms. Stories are simply rewritten. It produces an airless cycle of information. Papers too rarely have news stories of their own.

IAN MONK, PR

The media has ceded a lot of the power of setting the agenda; the definition of news has broadened to include celebrities and new products (the iPhone is a big story). But I don't join in the hand-wringing or say it's desperate that people outside newspapers have got a say.

JOHN KAMPFNER, EDITOR, NEW STATESMAN

Davies is right to point to the lack of investigative rigour: the primary purpose of journalism is to rattle cages. I was always struck at the extent to which political journalists yearned to be spoon fed. Having said that, I think he uses too broad a brush.

DOMINIC LAWSON, FORMER EDITOR SUNDAY TELEGRAPH

I'm not saying this is a golden age, but there's a strong investigative drive in the British press. A lot of papers put a strong value on such stories. I suspect we're about the most invigilated establishment in Europe.

CHRIS BLACKHURST, CITY EDITOR, EVENING STANDARD

I'm disappointed that a book which has as its premise the dictation of the news agenda by PRs should contain in it an anonymous quote from a PR criticising theStandard's coverage of the Natwest Three.

HEATHER BROOKE, JOURNALIST

It's not entirely true what Davies is saying. In the past, we just got scrutiny from newspapers and now think tanks publish results of investigations. But there's an assumption that the public aren't interested in government, just Amy Winehouse.

FRANCIS WHEEN, JOURNALIST/ AUTHOR

Davies is spot on. It's reasonable that newspapers carry PA accounts of court hearings, but he's right that there's more "churn" now. Reporters don't get out of the office the way they did once – partly a reflection of reduced budgets.

This is an edited extract from "Flat Earth News: an award-winning reporter exposes falsehood, distortion and propaganda in the global media", published by Chatto & Windus, price £17.99. To order this title for the special price of £16, including postage and packaging, call Independent Books Direct: 08700 798 897