That decision to delay the arrests was described as "seriously flawed" by Edmund Lawson, QC, the government-appointed counsel to the inquiry, who used the first day of the hearing to deliver a blistering critique of the conduct of the police investigation. Mr Lawson highlighted examples of alleged incompetence at every stage, including the "crass" failure of a surveillance photographer to report two incidents of bags being removed from the home of two suspects - bags which, he said, might have contained bloodstained clothing.
The inquiry, ordered by the Home Secretary, Jack Straw, is examining issues arising from the death of Stephen, 18, who was stabbed by a white gang at a bus stop in Eltham, south-east London, five years ago.
Mr Lawson's criticisms were echoed by Michael Mansfield QC, counsel for the Lawrence family, who said the identities of the five white youths were repeated to detectives by 26 different sources - including three police officers - in the two weeks before the arrests.
The suspects, members of a local gang, were named in telephone calls to the incident room and in anonymous letters as being involved in Stephen's murder as well as in a recent spate of racist killings and attacks in the area.
Charges against the five youths - Neil and Jamie Acourt, Gary Dobson, David Norris and Luke Knight - were all dropped before trial, and a private prosecution taken out by Stephen's parents, Doreen and Neville Lawrence, was also unsuccessful. The inquiry, chaired by Sir William Macpherson of Cluny, plans to call the five to give evidence.
Delivering his opening speech, with Mr and Mrs Lawrence at his side, Mr Mansfield said the investigation had been undermined from the start by racism. "The magnitude of the failure in this case cannot be explained by mere incompetence, or a lack of direction by senior officers, or a lack of execution by junior officers, or by woeful under- resourcing.
"So much was missed by so many that deeper causes and forces must be considered. The forces relate to two main propositions. One, that the victim was black, and that there was as a result a racism, conscious and unconscious, that permeated the investigation. Two, the fact that the perpetrators were white and were expecting some form of protection." Mr Mansfield added: "The inordinate and extensive delays and inactions give rise to one plain question: was the initial investigation ever intended to result in a successful prosecution?"
He said it was incredible, given that 56 officers were assigned to the case on the first night, that - he alleged - there was no systematic search of the area and witnesses were not properly debriefed.
Pursuing the theme of racial disharmony, Mr Mansfield quoted from a statement that Mrs Lawrence is to make to the inquiry today. In it, she says: "Stephen was well-loved and, had he been given the chance to survive, maybe he would have been the one to bridge the gap between black and white. Because he did not distinguish between black and white; he saw people as people."
For his part, Mr Lawson was particularly scathing about the "inexcusable" failure of officers to act on early tip-offs, and the resulting delays before identity parades were held and suspects' houses were searched.
"It appears that in a number of material respects, the police conduct of the investigation went badly wrong," he said. "Why weren't those arrests and searches carried out much, much more quickly? The police, if they can, must answer the indictment of delay."
A catalogue of police errors listed by Mr Lawson included their alleged failure to administer first aid to Stephen at the scene, to liaise sensitively with his family or to deal appropriately with important witnesses such as Duwayne Brooks, Stephen's friend. Forensic evidence such as a bloodstained tissue was lost, he said.
The inquiry, which began with a minute's silence in memory of Stephen, continues today.