MPs and some union officials have expressed relief that the proposed merger between BAE Systems and EADS has collapsed, but others believed the UK's long term interests could have been protected if the link-up had gone ahead.
Industry experts and the Government said they could see the logic behind the plan but conceded there were too many obstacles in the way.
Ian Waddell, national officer of Unite, which represents over 30,000 workers across the two companies, said: "A merger, with a jobs guarantee, would have created a strong new company that could have protected the UK's long term interests.
"There was an industrial logic to the merger, but national and political interests proved to be the stumbling block. The UK government now needs to strengthen its 'golden share' and send a powerful message that it backs British manufacturing and BAE Systems."
Jim Moohan, an official of the GMB union in Scotland, said: "This is a decision of fine judgment and the BAE workforce will be relieved that the management did not rush into a situation that could have destabilised a very successful company.
"There were too many 'ifs' or 'buts' and grey areas which if the merger had gone ahead were areas causing serious concern."
Tory MP Ben Wallace, who organised a letter from 45 MPs to the Prime Minister raising worries about the deal, told the BBC Radio 4 World At One programme: "I'm relieved. What was very clear was the Germans and French don't do business the way we do, the Germans and French have persistently over time interfered with EADS and how it operates, to essential detriment.
"It was a dangerous decision to go down this line given, if it failed, BAE might be weakened, and indeed put British jobs at risk.
"First of all, (the jobs) are a lot safer than if the German and French governments were sitting on the board of the new company and Britain with no shares in the company - you would have found when push came to shove, German and French jobs would have been saved but British would not have done.
"They are safer now than they were a few hours ago.
"But the second thing is we need to nail the misperception - BAE's order books are not as bad as the bankers, who have been helpful in sponsoring this deal, have made out, and you just need to take the word of investors who felt that BAE was facing the downside of the deal.
"BAE has a very healthy order book in the United States, it does incredibly valuable, very sensitive work for the United States government, and I think it is time we believed more in British industry, that it is winning orders."
Guy Anderson, principal defence industry analyst at IHS Jane's, said: "This will mean that job guarantees that would have been part of the deal will not be made. While the UK Government was seen to have supported the merger, the Government may face demands for more direct industry support to secure BAE's future.
"Should it come out that their efforts were half-hearted or didn't do all that they could, they may face criticism in a similar vein to the blame put their way following Eurofighter's loss in the Indian fighter competition.
"For eurosceptics, this will be seen as a positive, especially if BAE finds a way to limit job losses prior to any referendum on the UK role in Europe and before an election."
Shadow defence secretary Jim Murphy said: "Britain needs a defence industrial strategy now more than ever.
"Now that the answer to the future of UK defence manufacturing cannot be found in France and Germany it must lie in Britain and other established markets.
"Those Conservative MPs who were warning against the involvement of French and German governments must now demand a more active industrial strategy from the British Government.
"There will be huge worry and uncertainty about the future of defence jobs, thousands of which have already been lost. Ministers must urgently convene talks with industry to develop a fresh defence industrial plan to give certainty to companies and workers."
Shadow business secretary Chuka Umunna said: "Ministers have abandoned the approach which Labour adopted in government which was designed to give certainty to prime contractors and supply chains. We need ministers to work strategically with the defence sector to support industrial capacity and secure employment.
"For this to happen, the Government needs to adopt a proper defence industrial strategy, giving industry greater certainty over sovereign capabilities, ensuring programmes run to time and cost and professionalising procurement within the MoD."
Mike Clancy, general secretary designate of the Prospect union, said: "This decision changes nothing immediately, but it raises profound questions for the future of the defence sector and the UK's industrial base, which has been shown by this merger to be in crisis.
"Thousands of skilled jobs have been lost at BAE over the last two years and we fear the loss of thousands more if BAE cannot expand its order book into new markets.
"BAE is a prime contractor for the Ministry of Defence and this move clearly reflects fears about the future profitability of those arrangements as defence markets shrink.
"Now that ministers are liberated from their quasi-judicial role in the merger, they should spell out what plans they have to use the human and physical capital embodied in BAE to enhance the UK's manufacturing capacity.
"This nation needs more manufacturing capacity, not less, and where Government is the prime customer we cannot continue to operate in a policy vacuum."
Howard Wheeldon, managing director of ADS, the UK trade body for aerospace and defence, said: "We consider this a great opportunity lost."