DUBAI, United Arab Emirates (AP) -- American goals to repair Iraq's infrastructure will never be reached, in part because American intelligence failed to predict the country's potent insurgency, a U.S. government audit said.

Guerrilla attacks in Iraq have forced the cancellation of more than 60 percent of water and sanitation projects, mainly because insurgents have chased away contractors and forced the diversion of repair funds into security, according to an audit of the Iraqi Relief and Reconstruction Program released last week.

It is the latest in a series of auditing reports being issued by the special inspector general for Iraq reconstruction. An earlier report uncovered extensive fraud and incompetence involving millions of dollars.

The latest report focuses on the complications caused by lack of security, saying that the rise of Iraq's insurgency was never envisioned by U.S. officials, who originally budgeted about 9 percent of reconstruction aid for project security.

As kidnappings, killings and sabotage drove local laborers and foreign technicians from the reconstruction program, U.S. administrators were forced to step up protection for workers.

New measures such as armored vehicles, private security teams and blast walls absorbed as much as 22 percent of project costs, according to the audit.

"The whole purpose of those attacks was to drive those contractors out," said Wayne White, who headed the State Department's Iraq intelligence team until last year. "Lots of them had to leave. They were terrified."

Planners "envisioned a much more permissive security environment than that experienced in 2004 and 2005. The Iraq insurgency has directly affected the cost of the reconstruction projects, increased the cost of materials and created project delays," the audit found.

Pre-invasion U.S. intelligence reports said guerrilla attacks were likely, White said.

"But nobody predicted anything of this magnitude in terms of resistance," said White, now an analyst with the Middle East Institute in Washington. "And in part, the magnitude of the resistance was spurred by our failures in reconstruction."

U.S. officials coped with the gathering insurgency by diverting $5.6 billion of the $18.4 billion U.S. aid package into Iraq's security and public-safety sectors, while slashing projects aimed at restoring the country's water and electricity infrastructure, the report said.

Funds earmarked for Iraq's military and law enforcement jumped 55 percent, funding training and weapons for Iraqi police and troops, prison construction and additional border guards.

U.S. occupation authority planners assumed incorrectly that rebuilding projects could proceed without interference from Iraqi insurgents, according to the audit, titled "Challenges Faced in Carrying Out Iraq Relief and Reconstruction Fund Activities."

The insurgency has had a "very significant impact" on reconstruction efforts, said Greg Sullivan, a spokesman for the State Department. But he said rebuilding goals have always been to give Iraq a head start.

"This is an incredibly oil-rich country, and eventually money and resources are not going to be a problem," Sullivan said. "The long-term goals we're pretty confident Iraq can meet as long as it gets enough of a head start."

The spending diversions forced the cancellation of 60 percent of the 136 planned water and sanitation projects, including sewage, irrigation and dams. Just 49 water projects are expected to be completed, the audit says.

Of the 425 planned electric projects, 300 will be finished, meaning ambitious U.S. promises to restore Iraqi power will not be fulfilled.

Projects canceled include $1 billion for six generating plants across Iraq, which will cut back U.S.-funded increases in Iraq's power generation capacity from a planned 3,400 megawatts to 2,109 megawatts, the report said. The stated monthly goal was 6,000 megawatts.

Many in Washington agree the U.S. emphasis on huge infrastructure projects was a mistake because they provided few jobs or immediate improvements to daily life.

"So many of our goals were not met, in part because of really expert sabotage by the resistance," White said. "But it was also the fault of being overly focused on long-term projects that weren't bringing short-term relief."

Iraq's constant blackouts and a perception among Iraqis that the United States failed to live up to early reconstruction promises have helped make the U.S. occupation deeply unpopular.

Lack of electricity also boosted reconstruction costs, forcing contractors to import generators, White said, noting that few of Iraq's state-owned factories reopened after the U.S. invasion.

"If you can't rely on the national power grid, you really can't get back to a state of normalcy which is required for industrial recovery," he said.

By Jim Krane