In the paper, Sir John Gieve, the Home Office permanent secretary, said that upsetting Muslims would be a "potential cost" of ministers agreeing to demands for a full inquiry.
After receiving Sir John's paper, Mr Clarke decided not to order a public inquiry – a decision which infuriated many survivors and relatives of those killed.
One survivor said last night that she was "outraged" by the revelation.
Inquest hearings into the 7/7 deaths are expected to start this autumn.
As an alternative to a public inquiry the Home Office published, a year after the bombings, a "narrative" drafted by its own officials which merely set out the events leading up to the bombings, with little analysis of underlying causes.
If you don't know the underlying causes, how can you stop it from happening again?