The cross-party Commons foreign affairs committee said conditions in both Afghanistan and Iraq had worsened in recent weeks.
In a gloomy assessment of the international "war on terrorism", the committee said Iraqi forces were "a long way" from being able to take over responsibility for security in their country.
At the same time, it warned that the British mission in Afghanistan was in danger of "blurring" its twin objectives of fighting insurgents and tackling the drugs barons.
The committee also expressed concern about Iran's nuclear ambitions, as well as the Tehran regime's involvement in southern Iraq. However, it issued a strong warning against military action, except as a last resort.
The situation in Iraq continued to provide "a powerful source of propaganda" for the extremists, it said, as well as "a crucial training ground" for terrorist groups like al-Qaeda.
It described the security situation in Iraq - particularly in British-controlled Basra - as "deeply worrying" but said that the tactics of the coalition were in part to blame.
The report warned that Afghanistan - where Britain now has a 3,300-strong task force in the lawless Helmand province - was now in danger of going the same way as Iraq.
It said that "negligible progress" had been made in cutting opium poppy cultivation in the country - one of Britain's declared aims - and called on the government to "clarify" the mission of the British force.