OTTAWA -

Worries about Sikh terrorism often took a back seat to Cold War espionage games at Canada's spy agency in the months leading up to the 1985 Air India bombing, a public inquiry has heard.

Ray Kobzey, a former counter-terrorist investigator for the Canadian Security Intelligence Service, testified Thursday that he had trouble persuading his superiors to deploy a surveillance team to tail Talwinder Singh Parmar, who eventually became the prime suspect in the downing of Flight 182 with the loss of 329 lives.

"There were far too many demands on far too scarce resources," said Kobzey. "There was fierce competition for resources, unfortunately."

He recalled that, in those days, priority usually went to traditional counter-intelligence targets such as suspected spies from the Soviet Union, other East European countries and China.

It took Kobzey two months, from early April to early June, to persuade Ken Osborne, then deputy director of CSIS operations for British Columbia, to free up a team to shadow Parmar -- a man who had been described in internal documents as "the most radical and potentially most dangerous Sikh in the country."

The service was giving precedence at the time to a Russian target and Osborne was "reluctant to provide coverage for the Sikhs," said Kobzey.

"It required a bit of verbal arm-twisting on my part which removed me from his Christmas card list, to put it mildly."

Even when surveillance of Parmar was authorized, it was supposed to be confined to one day -- June 4, 1985, when two CSIS operatives tailed him into the woods near Duncan, B.C. along with one of his associates, Inderjit Singh Reyat.

The surveillance team heard a loud bang and interpreted it as a gunshot. They thought it might be target practice, sparking fears that Parmar's militant Babar Khalsa sect might be planning an assassination attempt against then-Indian prime minister Rajiv Gandhi during a visit later that month to the United States.

The surveillance that had been planned for a single day was extended for the next several weeks -- only to be called off two days before Flight 182 was downed. Once again resources were shifted to a Russian espionage target.

It was only after the bombing that CSIS realized the excursion into the woods at Duncan had been an explosives test.

Kobzey, who was on a sailing vacation and out of touch with the office when the surveillance was terminated, learned of Flight 182's tragic fate the morning of June 23 from the wife of a colleague.

His immediate reaction was: "That expletive Parmar. He did it. They did it. That was my gut instinct, and the significance of the Duncan blast came home to me at that moment."

The failed physical surveillance wasn't the only time the service had trouble deploying its full range of investigative tools against Parmar. Previous evidence has shown it took five months for the CSIS bureaucracy to grind out an application for a wiretap to monitor his conversations.

No warrants were obtained for two of Parmar's key associates, Ajaib Singh Bagri and Surjan Singh Gill -- and there was later speculation that Gill remained off-limits because he was acting as a CSIS informant all along.

Kobzey dismissed that suggestion when it was raised by Jacques Shore, a lawyer for the families of the Air India victims.

The B.C. counter-terrorism unit was a small shop, said Kobzey, and he never heard any talk of a mole within Parmar's inner circle. "To the best of my knowledge, Mr. Gill was never a source for CSIS."

Parmar, though he was considered the likely ringleader of the bomb plot, was never prosecuted in Canada. He was shot dead by police in India in 1992.

His colleague Reyat was the only man convicted, on a reduced charge of manslaughter. Bagri and another suspect, Ripudaman Singh Malik, were acquitted at trial in Vancouver in 2005.

The inquiry, under former Supreme Court justice John Major, is examining what went wrong with the investigation and trying to draw lessons for current anti-terrorist policy.