The components of a bomb intended for an Etihad flight out of Sydney's international airport on July 15 were brought to Australia from Turkey via air cargo and were not picked up by airport security checks.
The bomb parts were "military-grade" and "well advanced", Australian Federal Police Deputy Commissioner Michael Phelan said.
He conceded that the airport's failure to pick up the threat is "concerning", but "all the security agencies and those responsible for security of cargo and so on have put in place extra measures since that time".
"This is one of the most sophisticated plots that has ever been attempted on Australian soil."
Mahmoud Khayat, 32, and Khaled Mahmoud Khayat, 49, had allegedly been plotting with a senior Islamic State figure overseas since April. He was introduced to the pair through one of men's brothers, who police is also an ISIS fighter in Syria.
After the failure to check in the explosive on July 15, the men deconstructed that bomb and began working instead on a technically-advanced chemical dispersion device.
In multiple conversations uncovered by overseas intelligence agencies, the overseas ISIS commander was heard instructing one of the Sydney men on how to create such a device using hydrogen sulphide, and how to maximise the carnage it would create.
Hydrogen sulphide is a highly flammable and poisonous colourless gas with a foul odour of rotten eggs.
But police say there is nothing to suggest the device was destined for a plane.
"They were talking about crowded closed spaces, potentially public transport... but there were certainly no well-constructed (as we can determine) plans to put a device on anything specific," Deputy Commissioner Phelan said.
Police only uncovered both plots after being tipped-off by overseas intelligence agencies on July 26, three days before Saturday's raids across Sydney which saw four men arrested on suspicion of involvement in two terror plots.
Mahmoud and Khaled Khayat have now been charged with terrorism offences for the failed July 15 bomb plot and for the second, planned attack using a chemical dispersion device. Both men were refused bail in a Parramatta court on Friday morning.
If found guilty, the pair face maximum sentences of life imprisonment.
A third man has been released, while a fourth is still being held under specified time counter-terror provisions but has not been charged.
Police allege that Khaled Khayat attempted to use his brother as a mule to check in a bag containing an improvised explosive device onto the flight to Dubai out of Sydney on July 15 -- two weeks before the raids across Sydney which saw him arrested.
But the bag never made it to the airport's security check points.
"All the security agencies and those responsible for security of cargo and so on have put in place extra measures since that time," he said.
Police say speculation as to why the bag wasn't checked in is "conjecture", but Fairfax Media has reported that the bag containing the explosive device was questioned over its weight at the check-in counter and it was discovered that it was too heavy.
Authorities have confirmed that the bag reached the check-in desk, but was never checked in or taken onto the plane and did not go through any airport security checks.
It was after this failed attempt that the two men allegedly aborted that plot and began constructing a chemical dispersion device, under the instructions of overseas Islamic State leaders.