CIA Director Leon Panetta’s emergency testimony to Congress about an illegal assassination program has set off a crisis at the spy agency. The Daily Beast’s Joseph Finder exclusively reports that:

• The secret assassination ‘program’ wasn’t much more than a PowerPoint presentation, a task force and a collection of schemes—it never got off the ground

• Panetta’s three immediate predecessors—George Tenet, Porter Goss, and Michael Hayden—have spoken to him, and that he now sees that no laws were broken.

• Panetta has frantically tried to rectify his gaffe, but now faces increased Congressional oversight.

CIA Director Leon Panetta stunned Washington earlier this summer by disclosing, in an emergency closed-door briefing to Congress, that for the last eight years, the agency he now runs illegally concealed a secret terrorist-assassination program. The reaction was predictably explosive. The House intelligence-oversight committee launched a major investigation. Here was official confirmation, from the very top, that the CIA in the Bush years had been flagrantly and systematically violating the National Security Act of 1947.

“If we briefed Congress on every single foreign intelligence collection activity,” one former CIA director tells me, “we’d be a very small intelligence agency attached to a massive congressional briefing agency.”

But according to a half-dozen sources, including several very senior, recently retired CIA officials, clandestine-service officers, and Cabinet-level officials from the Bush administration, the real story is at once more innocent—Panetta was mistaken; no law was broken—and far more troubling: an inexperienced CIA director, unfamiliar with how his vast, complicated agency works, unable to trust senior officials within his own agency, and desperate to keep his hands clean, screwed up.

The Daily Beast has learned that shortly after his electrifying June 24 disclosure, Panetta spoke personally with each of his three predecessors—George Tenet, Porter Goss, and Michael Hayden—and only then realized the mistake he’d made about the program. An innocent mistake, but the consequences of his gaffe, which he’s unable to admit without damaging his own reputation further, will likely subject U.S. intelligence capabilities to unnecessary and intrusive oversight for years to come.

How did a mistake of this scale happen? My sources corroborate the following narrative:

On June 23, in the course of a routine briefing by the head of the National Counterterrorism Center, Panetta first learned about the assassination squads. Alarmed, he terminated the program at once and called the chairman of the House Intelligence Committee, Rep. Silvestre Reyes (D-TX). He told Reyes he’d discovered something of grave concern, and requested an urgent briefing for the House and Senate intelligence committees as soon as possible. Less than 24 hours later, he was on the Hill, "with his hair on fire," as a Republican member of the House committee put it. “The whole committee was stunned,” said Rep. Anna G. Eshoo (D-CA).

Afterward, seven Democratic members of the House Intelligence Committee sent Panetta an indignant letter: “Recently you testified that you have determined that top CIA officials have concealed significant actions from all members of Congress, and misled members for a number of years from 2001 to this week," the Democratic lawmakers wrote. They demanded he “correct” his statement back in May that the CIA does not mislead Congress.

Ten days later, one of them leaked the letter.

Panetta had set in motion a chain reaction of atomic proportions. “It was like shoving a rod into that nuclear mass,” a veteran senior CIA officer told me. A lot of Democrats had been waiting for this moment: an opportunity to shine daylight on the abuses of intelligence during the Bush-Cheney years. House Speaker Nancy Pelosi, an object of controversy, even ridicule, after charging that the CIA had lied to her about waterboarding, now felt vindicated. The CIA, trapped at last in its tangled web of lies, owed her an apology!

But once Panetta had spoken with Tenet, Goss, and Hayden, he learned that this secret “program” wasn’t much more than a PowerPoint presentation and a task force assigned to think it through. “Sensitive information” had been collected in a single foreign country, my sources tell me. That’s about it. It wasn’t really a coherent program at all so much as a collection of schemes, each attempting to achieve the same objective: to kill terrorists. This was one of perhaps dozens of ideas that had been kicked around at Langley since September 2001, when George W. Bush issued a presidential “finding” authorizing the agency to use deadly force against Osama bin Laden or other terrorists.

Under three successive CIA directors, these plans for paramilitary hit squads had been given three different names. (In the CIA, a program isn’t real until it’s given a codename.) But they never got off the ground. The logistical, legal, and political obstacles proved to be insurmountable. George Tenet gave up on it—too many moving parts. Porter Goss took another stab at it, but nothing, and then Gen. Michael V. Hayden’s team studied it for a while but envisioned nothing but trouble. So there was a reason that none of the last three CIA directors had briefed Congress about it: There was nothing to brief.

In fact, in all of General Hayden’s three years at CIA he had exactly two meetings on this, according to a close associate of his. More indicative, Hayden—known to be extremely punctilious—didn’t once mention these plans to George W. Bush, Stephen Hadley (Bush’s national security adviser), or Dick Cheney. (So much for “Cheney’s secret CIA program,” as so many Web sites dubbed it.) Had it been anywhere close to implementation, he surely would have obtained White House signoff. Anything else would have been political suicide. Nor did he brief Congress, according to this associate, because it didn’t approach the legal threshold. It was hardly “significant anticipated action” that obligates a congressional briefing, and it wasn’t clear that it would ever in fact lead to covert action. This was still in the exploratory, intelligence-collection stage.

“If we briefed Congress on every single foreign intelligence-collection activity,” one former CIA director tells me, “we’d be a very small intelligence agency attached to a massive congressional briefing agency.”

In any case, there was no reason for the CIA to conceal information about these hypothetical assassination teams. Congress had already been briefed, repeatedly, on the White House order to kill terrorists.

So Panetta ordered an internal CIA inquiry into the matter, headed by a widely respected senior official. In his private conversations with his three predecessors, Panetta “as much as admitted” to them (in the words of one CIA insider) that he’d misunderstood. Without explicitly apologizing, he assured the men—whom he’d in effect accused of breaking the law—not to worry: The whole thing would quietly go away. He told them that he’d been pre-briefed by the officer conducting the internal inquiry, and that when the report came out it would indeed back them up. It would come swaddled in vague banalities calling for improving communication between the CIA and Congress. And the whole thing would die a quiet death.

But of course it didn’t. The bell couldn’t be unrung.

Once the controversy exploded, Panetta, having testified that the CIA had deliberately concealed information about covert action from Congress, was in the awkward position of insisting that he’d hadn’t really meant it like that. “Panetta didn’t say that the agency misled Congress,” a U.S. intelligence official explained to me. “He took decisive steps to inform the oversight committees of something that hadn’t been appropriately briefed in the past. He didn’t attribute motives to that. He wasn’t director at the time.”

So why the frantically arranged session? “If this wasn’t a big deal, why would the director of the CIA come sprinting up to the Hill like that?” one congressional staffer pointed out, quite reasonably. A piece of disinformation was floated in The Washington Post to justify Panetta’s urgency: The program had been about to go active. Which, my sources emphasize, was flatly untrue.

In an op-ed piece in the Post, Panetta tried again to defuse the scandal by first hinting at the potential seriousness of the plan he’d just killed, describing it as not “fully” operational—and then veering away from his earlier disclosure that the CIA had concealed covert action from Congress. “Information about it had not been shared appropriately with Congress,” he said.

But according to Reyes, Panetta outright told them that they’d been “affirmatively lied to” by the CIA. Panetta now insists he never said that.

To veteran CIA-watchers, something about this whole story didn’t track. How could such a risky and serious program be concealed from the new CIA director for four months? Had the CIA really gone rogue, as some headlines in newspapers and on cable news shows blared? That was, for a time, the popular narrative: the honorable but naïve new CIA director being played by shadowy rogue elements right out of a 1970s Hollywood conspiracy thriller.

Alas, the sad truth is that the CIA, despite its Bourne Identity reputation, has become a timorous, risk-averse bureaucracy. Any program as fraught as the one he disclosed to Congress would have been revealed to him on the day he moved into his seventh-floor office. The fact it took four months for him to learn about it, during a routine briefing, should have told him something. There was no there there.

Panetta’s big mistake has only emboldened those Democrats in Congress who have been pushing to have all CIA debriefings, even the most classified, videotaped, to avoid future ambiguity. As one very former, very senior Bush administration official said to me in annoyance, “You know what? Let’s videotape them all. And when some important covert action gets torpedoed by the those guys on the intelligence committees and then we get hit again, let’s put those tapes up on YouTube for everyone to see who disarmed us. See what they think. It cuts both ways.”

Were it not for Panetta’s gaffe, there’d likely be no congressional hearings into “possible” violations of laws by the intelligence community. A staffer on the oversight committee told me that, although Panetta’s disclosure will be the main event, there are two other areas of “concern,” including an incident that occurred in 2001. The Panetta hearings, however, were “the straw that broke the camel’s back.”

More seriously, this controversy has given ammunition to congressional efforts to broaden CIA briefings. Instead of allowing the CIA to limit disclosure of the most sensitive, most highly classified stuff to just the “Gang of Eight”—the leaders of those committees and of the House and Senate—they want to require the CIA to brief the full membership of the intelligence committees.

At that point, the risks of leaks may become a serious issue (as the leaks in this incident prove). The CIA will then be faced with a choice: hold back as much as they can get away with legally—a risky game these days—or avoid any kind of covert action that might be jeopardized by congressional leaks, likely including the most high-risk attempts to target terrorist groups like al Qaeda.

As Jane Mayer illustrated in her excellent New Yorker profile, Leon Panetta faces a near-impossible job. He has to rally the troops while forcing them to confront their recent history. President Obama, reasonably, wanted an outsider to run the CIA, someone whose hands, by definition, were clean.

Unfortunately, what made sense in theory hasn’t worked out in reality. The job called for someone who knew where all the hidden levers were. Not only has Panetta become deeply unpopular within the agency, but, as these recent events demonstrate, Panetta—honorable, decent, savvy—probably wasn’t the best choice after all.

Joseph Finder is The New York Times bestselling author of numerous novels including Power Play, Killer Instinct, and Vanished (coming August 2009). Visit his Web site.