Abu Hamza, before his arrest for inciting murder

The Muslim cleric Abu Hamza told his trial today that Special Branch officers once told him that he could say what he liked so long as there was no blood on the streets.

Dressed in a blue shirt and with his arms thrust into his pockets, Abu Hamza took the stand in his own defence at the Old Bailey, where he faces charges including nine counts of soliciting to murder and three of trying to stir up racial hatred, mainly against Jews.

Asked by his lawyer, Ed Fitzgerald, if he had incited followers to kill in England, he replied in a loud voice: "No."

Asked if he had urged listeners to kill abroad, he said: "In the concept of murder, no. In the concept of fighting, yes."

He also denied encouraging people to hate Jews - "not as individuals, not as a race, not as a colour".

The defendant described lengthy meetings with MI5 agents and police between 1997 and 2000, in which he was warned that his sermons were taking him close to the edge of the law.

"They said, 'We think you are walking on a tightrope'," said Abu Hamza. "They said: 'You say things sometimes we don't like."'

During another meeting with Special Branch officers, however, he said that they had appeared unconcerned by his preachings. "They said: 'You have freedom of speech, we don't have to worry as long as we don't see blood on the streets."'

A further charge alleges that Abu Hamza was in possession of video and audio recordings, which he intended to distribute to stir up racial hatred. The final charge, under Section 58 of the Terrorism Act, accuses him of possession of a document, the Encyclopaedia of the Afghani Jihad, which contains information "of a kind likely to be useful to a person committing or preparing an act of terrorism".

The cleric, who was raised in Egypt but came to Britain in 1980 at the age of 21 and now has British nationality, denies all the charges.

In his evidence, Abu Hamza described how his interest in Islam had started in the 1980s, during the Afghanistan war.

In 1989 he got a job as a maintenance engineer at the Sandhurst Royal Military Academy - where Prince Harry is currently studying, and which Prince William is expected to attend - and confessed that he had kept drawings of the academy after leaving the job in July 1991.

He said that police had seized the diagrams when they searched his house in 1999, but later returned them. When they searched his property again in May 2004 they did not remove the documents, the court heard.

He described how he had started to visit Afghanistan and Pakistan in the early 1990s, and acted as a translator for injured mujahidin when they came to England to consult Harley Street doctors.

In 1991 he moved to Afghanistan permanently, and got a job in the country's reconstruction programme as a civil engineer. But he returned to England in 1993 after an incident in which he lost his hands, although he did subsequently travel to Bosnia to witness conditions of Muslims there.

He said he had helped foreign Islamic groups, but had never condoned violence against children or women. He said: "I wrote a book to distinguish those who do jihad and those who are hiding behind jihad."

Abu Hamza was appointed preacher at the Finsbury Park Mosque in 1997, scene of some of his Friday preaching. But he said that he had been invited as a peacemaker to "cool down" racial problems between Asian factions. He also claimed that during his Friday visits he had advised people about their personal problems.

"People would talk about ...children running away ... addiction. The majority of people were from abroad but some were second or third generation."

He said that under his influence people had become happier: "As for the first time the Mosque was a social place. They were happy to see children not on the drugs."

He denied advocating that people should take the law into their own hands and punish adulterers. Instead, he said, he would tell a transgressor to repent, and ask them to change what had cause the wrongdoing to happen.

Questioned on his attitude to people from different racial and religious backgrounds, Abu Hamza said that he was never abusive unless the other person had been abusive first. He claimed that he once signed a petition supporting a local synagogue that had been attacked. "Whoever comes towards me I take them with open arms," he said.

He referred the judge and the jury to the Koran, which said that racism was unlawful. Emphasising with his right arm, he said: "If you are a scholar you will never distinguish between anyone of any colour. Racism is one of the greatest sins."

Earlier Mr Fitzgerald had told jurors that the encyclopaedia seized at Abu Hamza's home was a handbook dating from the Afghan-Russian conflict, and that the book had already been seized several years ago and handed back to Abu Hamza by the police.

"This was returned to the defendant in 1999. They did not say ‘Look, that is a crime.' They did not even say ‘It might be better if you got rid of it.' They just gave it back. Suddenly what was described in 1999 as a military manual is now described as a terrorist manual."

Abu Hamza had never urged anyone to emulate suicide bombers, he went on, and his reference to Jews were in a historical and religious context. "He is not anti-Semitic."

The radical Islamic preacher has become a hate figure in some sections of the press, Mr Fitzgerald claimed. The fact that he had lost both hands and one eye and often wears a hook in place of one hand had helped to make him the target of "exaggeration and misrepresentation by innuendo" by hostile media.

"Mr Hamza is probably the most frequently abused and ridiculed person in this country," he said. "They call him Captain Hook. Hook. Hooky.... They run headlines like 'Hook Off'."

Mr Fitzgerald said it was true that Abu Hamza had given sermons in support of jihad, or holy war. But he said the speeches discussed violence in remote war zones, such as Bosnia, Afghanistan, Algeria and Israel.

"It's very difficult to say: 'Yes, that's murder being incited' when what someone is talking about is fighting in a country that's in conflict," he said.

"Not every killing can be called murder. Soldiers who kill on the battlefield are not guilty of murder... There is no simple equation: he talks of killing, he must be inciting murder."

The hearing was adjourned until tomorrow.