Over 14,600 people died as a result of terrorist attacks in 2005.
Al-Qaida's functionality in orchestrating terrorist activities diminished since 2004, according to the report, due to attacks on and arrests of the group's leaders. The State Department warned, however, that it is still the largest and most prominent terrorist threat facing the United States.
The report also identified terrorist "safe havens," including the Afghanistan border and Somalia, and six state sponsors of terror -- Cuba, Iran, Libya, North Korea, Sudan and Syria.
Iran was specifically singled out as the strongest supporter of terror, as the country's Ministry of Intelligence and Security has been involved in the planning of various terrorist attacks.
Iraq was not identified as a terrorist safe-haven, but the report did indicate that militant groups such as Abu Musab al-Zarqawi's al-Qaida in Iraq are growing more comfortable.
The report came in the middle of a series of attacks in Baquoba, Iraq, which killed 58 people including seven Iraqi soldiers, over two days.
U.S. forces, meanwhile, reportedly killed an al-Qaida in Iraq leader and other insurgents in a raid near Baghdad.
And a roadside bomb killed a U.S. soldier and an Iraqi policeman nearby.
Insurgents coordinated their attacks in Baquoba, using mortar rounds and hand-held grenade launches to bombard five police checkpoints and a police station.
It is unclear whether or not these attacks are related to the release of a rare videotape featuring al-Zarqawi calling for Sunni Arabs to oppose the Iraqi government. He referred to those Sunnis who cooperate with the Iraqi government as "agents" of the United States.