Communications firms are being asked to record all internet contacts between people as part of a modernisation in UK police surveillance tactics.
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The home secretary scrapped plans for a database but wants details to be held and organised for security services.
The new system would track all e-mails, phone calls and internet use, including visits to social network sites.
The Tories said the Home Office had "buckled under Conservative pressure" in deciding against a giant database.
Announcing a consultation on a new strategy for communications data and its use in law enforcement, Jacqui Smith said there would be no single government-run database.
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