First off, assuming the terrorists didn't know what they had is assuming a lot. They could be hoarding a whole sh##load of these things, nobody knows. I haven't handled these arms, but wouldn't you be able to hear/feel the gallon of liquid sloshing around inside? I would think they'd be different from the rest, in some recognizable way.
Second, Hussein knew the Americans were coming with full chem-bio suits on, and prepared to fight fire with overwhelming fire. He knew he could only get Baghdad annihilated, if he started firing gas and other toxins at our troops. I believe he made the strategic decision prior to the war, to hide/sell off his remaining stocks, and prepare for the guerilla war to come. The reports of WMD being moved to Syria have come from various sources, such as Israeli intel, Iraqi scientists, and others.
Hussein was not a threat to the West, in the sense that he was about to launch a full-scale attack on NYC. There was nothing stopping him from firing missiles loaded with whatever(he was dangerously close to a nuke, in '91) into Israel, or Saudi Arabia and Kuwait, where our troops were located. He was considered a threat to the region by everyone, especially his neighbors.
Before the war, everyone thought WMD stocks would be located. What everyone missed, is how easy it would be to hide them, if that's what he'd decided to do.