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It appears that although the US will sustain a credibility blow by not recovering weapons of mass destruction, this may not lead to more terrorism. He contends that terrorists do not exist in a vacuum, they are either directly or indirectly supported by the governments that harbour them.
Correct. What he's suggesting is this. Radical Islamists hated us before Iraq. And, they still hate us. But before Iraq, they saw the USA as a rattlesnake with no teeth. Now they've seen the teeth. But more importantly, regional governments that sanction terrorist havens within their borders have seen the teeth ... and given the choice between survival of their respective governments and allowing terrorist havens within their borders, they're likely to choose survival. You can hate a rattlesnake but, at the same time, respect it: