And, to the delight of Jewish organisations, it announced that an initial pounds 2m would be made available to reimburse those with outstanding claims to settle.
Publishing a long-awaited report on the consequences of Britain's wartime Trading With The Enemy legislation, Margaret Beckett, the President of the Board of Trade, said the Government was "revolted by Nazi persecution and has the greatest sympathy for its victims and their relatives".
Provisions for the relief of victims of the Nazis at the end of the war had been "well-intentioned" but sometimes "insensitive to their plight", she said.
"The present Government deeply regrets this, and I would like to apologise to those individuals and to their relatives and descendants. A different attitude would be expected now."
The Government came under fire last year for the way post-war bureaucracy prevented many Jewish families from reclaiming valuables placed in Britain for safe-keeping. "Enemy assets" frozen during the war included accounts held by German and eastern European Jews.
In one case, the family of a woman who killed herself rather than be taken by the Gestapo to a death camp was denied a claim, because she was not actually "detained" as laid down in the rules.
Others claimants were refused if they had been detained in a labour camp rather than a death camp.
The 144-page report, published today, showed most assets seized under the war-time legislation were returned to the original owners or - to the anger of Jewish organisations - were used to compensate British nationals whose assets were seized in German-controlled territory.
Treaty signatories undertook to compensate their own nationals whose property was confiscated in the UK, but Jews in Communist-controlled eastern Europe received nothing from their governments.
Mrs Beckett said the Government accepted the general principle that confiscated assets placed in the UK by victims of the Nazis should be returned to them "where practicable and where claims can be validated". But she said: "The inadequacy of many of the records will make this no easy task."
To assist, the Government is to ask an independent assessor to study the report and consult interested parties about it.
Lord Janner, chairman of the Holocaust Educational Trust, was delighted by the move. "Having harried the Government, I would like to say this action is a shining example of honour and decency," he said, contrasting it with the "disgraceful" behaviour of the post-war governments.
Eldred Tabachnik, of the Board of Deputies of British Jews, said they broadly welcomed the report. "There is clearly a need for a practical and workable scheme to be put in place as soon as is possible."Reuse content