The Office of Special Plans was formally established in October 2002 as an expansion of the Near East and South Asia bureau's Northern Gulf Directorate, created by Paul Wolfowitz and Douglas Feith, as charged by Secretary Rumsfeld. Day-to-day leadership was by William Luti (Deputy Under Secretary) and Abram Shulsky (director). The OSP absorbed the work of Feith's earlier CTEG and became Bush's primary intelligence source on Iraq WMD and al-Qaeda links, 'overshadowing the CIA and the Pentagon's own Defense Intelligence Agency.' Colin Powell called it a 'Gestapo office.' Seymour Hersh reported in The New Yorker that OSP staff self-mockingly called themselves 'the Cabal.' The DoD Inspector General later found the OSP's work 'inappropriate' though not 'illegal.'

The Office of Special Plans absorbed the work of Wurmser and Maloof's Counter Terrorism Evaluation Group when it was formally established in 2002 under William Luti (deputy undersecretary) and Abram Shulsky (director). By the time OSP was operational, Wurmser had moved to the State Department under John Bolton, but he remained connected to the OSP network — he was part of a group that met regularly in Douglas Feith's office, which included Feith, Luti, Shulsky, Harold Rhode, Richard Perle, and Maloof. Karen Kwiatkowski, a Pentagon officer who observed the OSP's formation firsthand, described it as a 'neoconservative capture of the policy-intelligence nexus.'

Philip Giraldi (former CIA) described Ledeen as 'the Office of Special Plans' man in Rome' who 'quickly established himself as the liaison between SISMI and Feith's OSP.' Ledeen worked as a consultant to Under Secretary of Defense for Policy Douglas Feith, who oversaw the OSP. The December 2001 Rome meetings Ledeen organized — bringing Pentagon officials together with SISMI and Ghorbanifar — were conducted under Feith's authority. The Pentagon Inspector General later found the OSP 'developed, produced, and then disseminated alternative intelligence assessments' that were 'inconsistent with the consensus of the Intelligence Community.'

In early 2002, Deputy Secretary of Defense Wolfowitz and Undersecretary Douglas Feith created the Office of Special Plans within the Pentagon's Near East and South Asia Affairs section, initially run by William Luti with Abram Shulsky as director. Wolfowitz was 'impatient with the C.I.A.' and wanted alternative intelligence assessments supporting the case for war with Iraq. The OSP cherry-picked uncorroborated intelligence on Iraqi WMD and al-Qaeda links, feeding it directly to Rumsfeld and Vice President Cheney, bypassing normal intelligence vetting channels.

The Office of Special Plans served as a shadow intelligence operation that directly challenged CIA analytical conclusions on Iraq. The OSP relied on Iraqi exile sources (particularly Ahmed Chalabi's INC) that the CIA considered unreliable, and produced assessments linking Iraq to al-Qaeda that the intelligence community consensus did not support.

The OSP (September 2002 to June 2003) produced intelligence supporting war that the CIA would not provide. It worked directly with Chalabi and the INC. The Pentagon IG found in 2007 that the OSP 'developed, produced, and then disseminated alternative intelligence assessments that were inconsistent with the consensus of the Intelligence Community.'