The Hallett Review has found there were "significant systemic failings" in the handling of the controversial On The Run letters scheme.
The Labour government scheme saw around 200 fugitive Irish republicans receive assurances that they were not wanted by UK police.
Announcing the findings of Lady Justice Heather Hallett's report in Parliament, Northern Ireland Secretary of State Theresa Villiers said the scheme was not unlawful, but that the way it was administered was flawed.
She apologised on behalf of the Government for the collapse of the trial of Hyde Park bomb suspect John Downey, who received an official assurance he was not wanted by police - but said the review has identified two other cases where similar errors were apparently made.
The judge said the scheme agreed between the last Labour government and Sinn Fein was not well publicised, and effectively kept "below the radar", but was not secret.
'No get out of jail free card'
"The administrative scheme did not amount to an amnesty," she said.
"Suspected terrorists were not handed a 'get out of jail free card'."
Lady Hallett was asked by Prime Minister David Cameron to investigate how more than 200 people were told they were not wanted for paramilitary crimes as part of a peace process deal between Sinn Fein and Tony Blair's Labour government.
Letters informed On The Runs (OTRs) living outside the UK that they were not sought by police, allowing them to return to the jurisdiction but not ruling out future prosecutions if further evidence emerged.
The judge decided Mr Downey's arrest, when he travelled through Gatwick airport last year, and the subsequent prosecution was an abuse of process.
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She criticised police heavily over the error in the Downey case, but said the court proceedings also shone a light on the wider administrative scheme of sending assurance letters to on-the-runs.
She outlined details of the two other cases where letters were sent in error:
- The use of an incorrect date of birth to search a police database may have missed an offence potentially linked to an individual. An individual with the same name and same year of birth was wanted for a terrorist offence. It has not yet been established if this was the same individual who received the letter of assurance.
- An individual who was wanted for an offence committed after the 1998 Good Friday peace accord was sent a letter with a general assurance they were not wanted. The origin of the mistake lay in the fact the police believed they were only searching for pre-1998 offences and therefore did not outline details of the 2003 offence when informing the Northern Ireland Office that the individual was "not wanted by the PSNI".
The scheme saw names of individuals passed to the Government, the majority through Sinn Fein. The names were then passed to police and prosecutors to assess their status.
A report on each individual was sent back to the Government and, if they were declared as not being wanted, a letter of assurance was then issued to the individuals.
The Government accepted the report's conclusions and recommendations.
Theresa Villiers said: "I know that recent events have revived painful memories for those affected by that terrible atrocity (Hyde Park) and I apologise again on behalf of this Government for any hurt that has caused."
She added: "I fully accept the Hallett Report's conclusions and recommendations and am determined that the Government will act on them.
"But, as I have said before, as far as this Government is concerned, the OTR scheme is over."
Lady Justice Hallett's 273-page report also found:
- There was no logical explanation for why police in Northern Ireland failed to flag up that Mr Downey was wanted by the Metropolitan Police in London.
- She criticised the fact that the Police Service of Northern Ireland missed at least two further opportunities to rectify the error.
- The Government did not widely publicise the scheme - but that it was not secret. But she said the lack of openness caused particular distress to victims of terrorism.
- There was insufficient legal consultation as to the consequences of sending the on-the-run letters.
- There was pressure exerted by Sinn Fein on the Government to quickly resolve the OTR issue and subsequently by Government on officials, but that pressure "did not cross the line" into becoming improper.
- The scheme lacked proper lines of responsibility, accountability and safeguards.
- There was insufficient liaison with other police forces and senior prosecutors elsewhere in the UK.
- A total of 13 convicted OTRs benefited from royal pardons.
In her conclusion, Lady Justice Hallett warned politicians: "No one should use my findings to make political capital.
"Those whose lives have been devastated by terrorism deserve better. They have suffered enough."
First Minister Peter Robinson reacted angrily, slamming the scheme as "wrong in principle and shambolic in practice".
PSNI Chief Constable George Hamilton this afternoon apologised to the Hyde Park victim's families for the "failure to secure justice for their loved ones".
"The role played by policing in the administrative scheme was a critical but limited role which operated within the narrow constraints of policing duties," he said.
"The Police Service’s role was to conduct an evidential review of the status of individuals at that particular moment in time. The information was then passed to the independent prosecuting authorities.
"Police wrongly informed the prosecuting authorities that an individual was not wanted, when there was information to suggest that he was wanted by the Metropolitan Police. On that basis the prosecution for the Hyde Park bombing failed.
"With the publication of today’s report, I want to reiterate PSNI’s apology for the additional pain the families have had to endure as a result the failure to secure justice for their loved ones. My colleague, Assistant Chief Constable Drew Harris, has also met with the families in person to express our sincere regret."
Police now await the outcome of the Police Ombudsman's investigation, but have begun reviewing of each of the 228 cases involved in the OTRs scheme.
Mr Hamilton warned it would be "time and resource intensive" and will be "conducted diligently over the coming years".
The letters sparked political crisis when they were revealed during the trial of John Downey for the IRA's 1982 Hyde Park bombing which killed four soldiers.
He had wrongly been told by the PSNI that he was not wanted for questioning or prosecution in the UK despite a Metropolitan Police warrant for his arrest for the murders.
The case revealed the extent of the government's assurance scheme and after Mr Downey walked free, Stormont First Minister Peter Robinson warned he would resign unless an inquiry was launched and letters to OTRs rescinded.
Former Northern Ireland Secretary, Labour's Peter Hain outlined the background to the arrangement in 2007.
Sinn Fein Stormont assembly member and a former republican prison escapee Gerry Kelly gave names of OTRs to the Government but ministers were not told who the individuals were.
The PSNI checked records for evidence which could lead to an arrest or prosecution at the time or into the future and after a second check, if no material was found, the Northern Ireland Office (NIO) signed the letters.
The Attorney General confirmed the scheme was lawful, Mr Hain said.
Former Attorney General Lord Goldsmith told a committee of MPs: "There was a bona fide intention to deal with a very difficult situation in order to advance the peace process in a way that didn't damage the justice system, which didn't involve removing people from prosecution in circumstances where prosecution was justified."
While most cases were dealt with under the last government, almost 40 outstanding applications were taken on by the coalition Government when it assumed power in 2010.
Sinn Fein president Gerry Adams has claimed the entire controversy around OTRs was a sham crisis.
Stormont deputy First Minister Martin McGuinness claimed the fact other republicans were denied letters - and told they would be arrested if they entered the UK - proved that assurances were nothing more than official confirmation that there was no evidence linking individuals to offences.
DUP leader Mr Robinson accused former prime minister Mr Blair of a "deliberate deception by omission" by failing to tell the majority of politicians in Northern Ireland about the agreement his government had struck with Sinn Fein.
Unionist critics have accused Sinn Fein of negotiating on stalled proposals for dealing with outstanding peace process issues with "get out of jail free" cards in their back pockets.
Some conflict victims viewed the letters as constituting an amnesty for terrorists but the Government has denied this and said they represented a statement of fact at a particular time.
The scheme has been halted.
Unionists recently walked out of renewed political discussions in a row over loyalist parades.
But the issue of the past is arguably still among the most emotive facing society in Northern Ireland.
With more than 3,000 killed during the Troubles and most murders unsolved, countless bereaved continue to campaign for truth and justice.
Meanwhile, thousands injured in the violence daily suffer the physical consequences.
An agreed mechanism to address the conflict legacy has proved elusive.