The move would be a way of "helping build the relationship" with US technology giants and could make it more likely they would comply with requests from British law enforcement agencies, senior lawyer David Anderson said.
After winning last month's general election outright, Prime Minister David Cameron's Conservative government wants to pass new legislation giving intelligence services and the police increased powers to monitor Internet and phone use.
Ministers and top spies say new measures are needed to keep Britain safe from groups such as the Islamic State jihadists in Iraq and Syria.
But the issue of how far new laws should go is sensitive due to privacy concerns highlighted by leaks from Snowden, an ex-US National Security Agency worker who claimed Britain's communications nerve centre GCHQ was carrying out bulk data collection.
Launching a government-commissioned report into the issue, Anderson, the independent reviewer of terrorism legislation, said security services were in a "cat and mouse game" with criminals.
"If this sense of disillusionment and disenchantment is perpetuated and spreads further, then I think that both law enforcement and intelligence lose the public confidence that they actually need," he told reporters.
Anderson's recommendations include that warrants authorising data interception should be authorised by a judicial commission instead of the interior minister.
He also backed the right of agencies to carry out bulk collection of data, subject to extra safeguards.
But he urged a "law-based system in which encryption keys are handed over by service providers or by the users themselves only after properly authorised requests".
"It is particularly important to engage communications service providers in developing solutions, given the technology supporting modern communications," he said in a written statement to parliament.
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