In the past our politicians offered us dreams of a better world. Now they promise to protect us from nightmares. The most frightening of these is the threat of an international terror network. But just as the dreams were not true, neither are these nightmares. The first part of the series explains the origins of Islamism and Neo-Conservatism.

The Power of Nightmares continues its assessment of whether the threat from a hidden and organised terrorist network is an illusion. Part two, the Phantom Victory looks at how two groups, radical Islamists and neo-conservatives with seemingly opposing ideologies came together to defeat a common enemy. Among the many foreigners drawn to Afghanistan was a young, wealthy Saudi called Osama Bin Laden. In the second episode, Islamist factions, rapidly falling under the more radical influence of Zawahiri and his rich Saudi acolyte Osama bin Laden, join the Neo-Conservative-influenced Reagan Administration to combat the Soviet Union's invasion of Afghanistan. They are successful in repulsing the Soviet armies and, when the Eastern Bloc begins to collapse in the late 1980s, both groups believe they were the primary architect of the "Evil Empire's" defeat and thus have the power to carry out their revolutions in their homelands. Curtis instead argues that the Soviets were on their last legs and were doomed to collapse without intervention.

The Power of Nightmares assesses whether the threat from a hidden and organised terrorist network is an illusion. In the concluding part of the series, the programme explains how the illusion was created and who benefits from it. The final episode addresses the actual rise of al-Qaeda. Curtis argues that, after their failed revolutions, bin Laden and Zawahiri had little or no popular support, let alone a serious complex organisation of terrorists, and were dependent upon independent operatives to carry out their new call for jihad. The film instead shows the United States government wanting to prosecute bin Laden in absentia for the 1998 U.S. embassy bombings, and needing to prove him to be the head of a criminal organisation to do so. They find a former associate of bin Laden, Jamal al-Fadl, and pay him to testify that bin Laden was the head of a massive terrorist organisation called "al-Qaeda". With the September 11th attacks, Neo-Conservatives in the new Republican government of George W. Bush use this created concept of an organisation to justify another crusade against a new evil enemy, leading to the launch of the War on Terrorism.