Ian Crampton, a detective superintendent until his retirement, told the public inquiry into the black teenager's death that he decided that the best strategy was to defer arrests, although the five youths eventually charged were repeatedly named by police informants in the first two days.
"With hindsight, knowing what I know now, I would have arrested earlier," he said. "What I know now is that the strategy was unsuccessful because it didn't work. Hindsight would tell me quite clearly that the other option may well have worked."
The inquiry has heard that no arrests were made for two weeks after the killing. Charges against the five suspects - Jamie and Neil Acourt, Gary Dobson, Luke Knight and David Norris - were later dropped by the Crown Prosecution Service, and a private prosecution by the Lawrence family also failed.
Mr Crampton, who handed over to another senior investigating officer three days after Stephen was stabbed to death in Eltham, south-east London in April 1993, told the inquiry that information about the existence of two potential witnesses never reached him. It might have "put a wholly different complexion on the inquiry," he said.
Officers on his squad also failed to pass on promptly two "clearly important" tips they received about the identity of the alleged killers, he added.
Cross-examined by Michael Mansfield, QC, counsel for the Lawrence family, Mr Crampton denied ever having had dealings, "socially or professionally", with David Norris's father, Clifford, a well-known criminal who was reputed to have bought off police officers.
He said that when David Norris was named by informants, he did not link him with Clifford, who at the time had been wanted by police for four years for alleged murder and drugs smuggling. "It did not ring bells with me that this 17-year-old boy had been a member of that family at all," he said.
Mr Mansfield asked him: "When the name David Norris came up, are you saying as the senior investigating officer that the notorious south-east London criminal family of the same name never occurred to you?" "That's correct," he replied.
Mr Crampton said he deferred arrests because of a lack of evidence. He rejected a suggestion that there were "other forces at work".
The inquiry was told that he adhered to his strategy even after a statement was made by Stacey Benefield, the victim of an attempted stabbing the previous month, naming Norris and Neil Acourt as his assailants.
Mr Crampton conceded that it was "the single most negative decision" that he made, and acknowledged that the grounds on which the five were eventually arrested "applied with just as much force" two days after the murder.
The inquiry continues today.
A memorial plaque at the spot where Stephen died has been vandalised for the second time in just over two months.Reuse content