Headley, who has been testifying before a special court here in the 26/11 case via video-link from the US since Monday, also revealed that the ISI and LeT wanted to target Mumbai airport and naval station.
He also claimed that he was interested in developing close relations with a Shiv Sena member as he thought LeT would be interested to either attack the Sena Bhawan or assassinate its head.
He identified a photograph of Ajmal Kasab, one of the ten perpetrators of the attack who was caught alive, when it was shown to him.
Headley told the court here that his handlers in the ISI and LeT wanted to target Mumbai airport and Naval air station during the 26/11 terror attack.
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"Major Iqbal expressed disapproval of certain areas I had recced as targets. I felt that Major Iqbal was unhappy because Mumbai airport was not selected and included as one of the targets for the 26/11 attack," said the 55-year-old, who recently turned approver in the case.
"I also visited and videographed BARC. Major Iqbal told me that in some future date I should recruit some employee of BARC who would give us classified information and would be ready to work for the ISI," he said, adding that he had handed over the video to Sajid Mir and Major Iqbal.
In further disclosures, he said that after he had recced Mumbai, he had several meetings in Pakistan with LeT leader Zaki-ur-Rehman Lakhvi, Sajid Mir, Abu Kahfa and Abdul Rehman Pasha and Major Iqbal.
"Ilyas Kashmiri asked me to recce National Defence College in Delhi as it was a primary target for Al-Qaeda," he said.
Headley revealed that during his last visit to Mumbai in July 2008, prior to the 26/11 attacks, he had surveyed and videographed the Chabad House in south Mumbai.
"I don't know who was staying there. Sajid Mir and Pasha asked me to survey this place and said that it was an international location as it had Jewish and Israeli people," he said.
"I discouraged them (LeT) about Naval air station and Siddhivinayak temple as targets as then all the ten attackers would have had to concentrate on one target only," he said.
"I met one Rajaram Rege inside Shiv Sena Bhawan in Dadar
during 2006-2007. I attempted to develop closer relation with him. I was interested in accessing that building (Shiv Sena Bhawan) at that time.
"I thought LeT would be interested in the future to either attack the Shiv Sena Bhawan or assassinate its head," he said answering questions put to him by Special Public Prosecutor Ujjwal Nikam regarding all those people in Mumbai with whom he had developed friendly relation.
The second option was to leave the place of target and go to Kashmir and continue fighting with the troops there, he said.
Headley said Kahfa told him that the second option was discarded "as if it was in the mind of the person (attacker) that he has to leave then he will not fight well".
"I tested one of the phones. Sajid Mir asked me to go to Wagah border if the signal was working in the phone. I did so and informed Sajid Mir that the signals were working," he said.
Headley also told the court that they got to know from Indian media that one of the ten terrorists, Ajmal Kasab, was captured after the attack.
"Sajid Mir and everybody in LeT were saddened by this," he said.
When Nikam showed a photograph of Kasab, Headley identified him and said, "Yes this is Ajmal Kasab... Rehmatullah...This means God bless him or God forgive him."
He disclosed that during his last visit to Mumbai in July 2008, he had also gone to Siddhivinayak temple and made a video of it.
"I purchased the red and yellow wrist bands.... I forget the name of it. I thought that the ten youths could wear it as a cover so that people would think they were Indians.
purchased five books from a shop at the Taj Hotel.
"During the same visit I also visited the Nalanda book shop inside Taj Hotel where I purchased five books. One of the books was 'Indian Army Vision 2020'. I was interested to know the progress of the Indian Army in the future," he said.
When Judge G A Sanap asked Headley why he had purchased the other four books, he said, "The other books were pictorial and beautiful, hence I purchased them. There is nothing sinister about those books. The first book was sinister."
"In May 2008, I visited US. I could not meet Tahawwur Rana (Headley's business partner), but I spoke with him on the phone. I said that I had gone to India and selected landing site," he said.
Headley said that LeT commander Zaki-ur-Rehman wanted to finalise Gateway of India as the landing site for the 10 terrorists as it was very close to the Taj hotel.
"I, however, said it was not a good idea as the attackers would be required to go through Gateway of India by crossing naval installation and they could be detected. Zaki Sahab and others agreed to my suggestion," he said.
"When Zaki Sahab saw the targets I had selected, he said this was very important and has to be done properly. Zaki Sahab said surveillance for the attacks should be done properly. He said this would give a chance to take revenge for all the bomb blasts India had done in the past in Pakistan. Zaki Sahab wished me good luck," he said.
He told the court that the idea to divide the ten terrorists in different groups was also discussed in one of the meetings in Pakistan.
He also told the court that he had informed his first wife Shazia about the 26/11 attack.
"On November 28, 2008, Shazia sent me an e-mail congratulating me for the 26/11 attack," he said.
Headley is serving a 35-year prison sentence in the US for his role in the Mumbai attacks.