The third murderer has yet to be named by the Metropolitan Police, who said although Butt was on their watch list, there was no evidence he was planning an attack and therefore his file was not deemed a priority.
Assistant Commissioner Mark Rowley said: 'There was no intelligence to suggest that this attack was being planned and the investigation had been prioritised accordingly.
'Work is ongoing to understand more about them, their connections and whether they were assisted or supported by anyone else.'
Butt's involvement is doubly embarrassing for police and the security services because he appeared in a TV documentary last year about British jihadis – and was also involved in a filmed altercation with police in a pair of Rayban sunglasses after he unfurled an ISIS flag in Regent's Park.
On Channel 4's The Jihadis Next Door he was caught on camera alongside two notorious preachers who were well known to police and intelligence officials because of their extremist views.
He was reported to the anti-terror hotline after he became radicalised by watching extremist videos on YouTube and police were later warned about the suspect radicalising children in a local park two years ago - giving them sweets and money to listen to him.
A friend said he was never contacted by the police or MI5 about his concerns, adding: 'I did my bit, I know other people did their bit but the authorities did not do their bit'.
Butt had been left traumatised at the age of 12 by the death of his father, MailOnline can reveal, and he was also been run over outside his house in East London four years earlier.
Neighbours said his father 'brought the children up well' and that his loss had a profound effect on the youngster, paving the way for his extremism.
He later became radicalised and had an arranged marriage which produced two children.
A neighbour, who tried to resuscitate the father, said Butt was screaming hysterically when the family had found the head of the family 'stiff and on his side'.
When he was eight, the would-be terrorist ran out between two parked cars and was hit by a vehicle, breaking his teeth and damaging his leg, meaning he walked with a limp until the day he was shot dead.
'The family received £2,500 in compensation from the insurers,' the neighbour said.
It appears he did not fade under the radar, as he was last month spotted urging people in East London not to participate in the general election and, according to The Guardian, he was a supporter of the banned Islamic extremist group al-Muhajiroun.
Michael Membo told the BBC he thought the terrorist was moving out because he had parked in the middle of the road and that his religious beliefs appeared to harden since the turn of the year.
He told Sky: 'He was a very interactive with the neighbours and with the kids. He joked around a lot, but we did not know whether to take it at face value.
‘There were no signs, as such, but at the start of the year he started to grow his beard. He had never really had a long but I thought it was just done by choice.
‘His style of clothing was more Islamic rather than casual. It became more frequent – sometimes he would wear a cap and sometimes he wouldn’t.
‘What we noticed was that he was speaking to the kids about his views.
‘The kids would tell their parents but people would just say “oh, it’s only Abz – don’t take him so seriously”.’
One of those youngsters told the BBC: ‘He was unhappy about what women were wearing. He wanted women to wear hijabs.
'We would speak about Syria and Afghanistan and how these countries were getting bombed.’
Neighbours have described how Butt hid behind a 'nice guy' persona and duped parents into trusting him to be alone with their children.
He was known to play football and table tennis with the youngsters, but a former team-mate of the terrorist who used to play seven-a-side football with Butt at Newham Leisure Centre told MailOnline: ‘He used to come to the session in Newham where I live and play seven-a-side football.
‘It’s a quite shock to see he’s involved.
‘He was really good at football, a really talented player – and obviously an Arsenal fan.
‘I remember one incident when a friend of mine and my brother were playing when there was a violent fight on the pitch and he [Butt] stepped on someone’s head.
‘It was only a friendly game but he instigated the fight.
‘He was quite a heated, confrontational character.
‘It was obvious back then he was becoming more radicalised - I could see the beard was growing longer and longer and the way he spoke, he would use Islamic terms in his speech.
‘I respect everyone for all their own views and I wasn’t judging him at the time so thought nothing of it.’