Lawyer Pat Finucane was the victim of a Latin American-style Army-run death squad, the Court of Appeal was told yesterday.
Counsel for the solicitor's widow said Mr Finucane's assassination was State-sponsored terrorism and a "horror story".
The allegations were made as Geraldine Finucane began her bid to overturn a ruling that Prime Minister David Cameron acted lawfully in refusing to hold a public inquiry into the killing.
The challenge was adjourned after it emerged one of the three appeal judges had been involved in a civil action Mrs Finucane issued more than 20 years ago.
Lord Justice Weir agreed to step aside from hearing the appeal, and proceedings were put on hold until November.
Mrs Finucane took the Prime Minister to court after he ruled out a public inquiry in 2011.
Instead, Mr Cameron asked QC Sir Desmond de Silva to review the case and produce a narrative of what happened.
Sir Desmond's report confirmed agents of the State were involved in the murder and that it should have been prevented, but also that there had been no overarching State conspiracy.
Last year, a High Court judge ruled Mr Cameron acted lawfully in refusing to hold an inquiry.
Despite throwing out Mrs Finucane's bid to force the authorities to publicly examine the killing, the judge also said the State had not fully met its human rights obligation to investigate.
Opening an appeal against that verdict, Barry Macdonald QC claimed the case was about an abuse of power.
He said the 500-page de Silva report contained only five pages on the role of the Government.
No responsibility has been attached to any minister or official, and no charges have been brought against any police officers, soldiers or security service personnel, the court heard.
Referring to Ken Barrett, the loyalist gunman convicted of the killing, Mr Macdonald said: "The only person held accountable was one of the UDA puppets used to pull the trigger."
He also quoted correspondence from one of Mr Cameron's advisors describing the killing as far worse than anything alleged in Iraq or Afghanistan.
Questioning why the authorities appeared to regard the murder as the most difficult from Northern Ireland's troubled past, the barrister continued: "The answer is because in this liberal democracy where the rule of law is supposed to be paramount, the Army is running death squads of a kind normally associated with Latin American dictatorships."
Rather than a few renegade, soldiers, Mr Macdonald alleged that a dedicated unit was established by the military hierarchy.
Investigations into the assassination by former Scotland Yard chief Sir John Stevens were obstructed by the Army and RUC, it was also claimed.
The court was told that the Stevens team was denied access to intelligence and had its offices set on fire in an attempt to destroy the evidence gathered. "This was not just something of a horror story for the security forces, it was something of a horror story for the Government," Mr Macdonald said.
He claimed that commissioning the de Silva review insulated ministers from any scrutiny.
It also meant soldiers, police officers and others allegedly involved in the murder and in perverting the course of justice had impunity, he added.
The planned three-day hearing had to be adjourned after counsel for the Government, James Eadie QC, applied for Lord Justice Weir to recuse himself.
It emerged that while a barrister in the early 1990s, he had endorsed a writ issued by Mrs Finucane in a civil action over her husband's killing.
It was stressed that there could be no suggestion of any actual bias on the part of the judge, who had no memory of the earlier case but agreed to have no more involvement in the appeal.
Adjourning proceedings to November, Lord Justice Gillen said: "We express our profound disappointment that this has been allowed to happen."