The soldier alleged to have faked photographs appearing to show British troops abusing an Iraqi prisoner will not face criminal charges.
The announcement yesterday by the Crown Prosecution Service (CPS) almost certainly marks the end of legal proceedings in a case that has cost the taxpayer hundreds of thousands of pounds to investigate.
The CPS said lawyers had advised the Ministry of Defence Police that there was insufficient evidence for a "realistic prospect of conviction" against Private Stuart Mackenzie.
It follows the collapse in April of a court martial at the Military Court Centre in Catterick, North Yorkshire, against Pte Mackenzie, 25, a Territorial with the Lancastrian and Cumbrian Volunteers. The Army admitted then that it could not prove that Pte Mackenzie was on duty on the day the pictures were alleged to have been staged.
A CPS spokesman said: "We have concluded there is insufficient evidence for a realistic prospect of a conviction."
The decision was immediately criticised by the shadow Defence Secretary, Liam Fox. "The British public will find it difficult to understand how an individual who has damaged the reputation of this country and its armed forces has been allowed to go unpunished," he said.
The photographs, which were published in the Daily Mirror in May 2004, appeared to show British troops torturing an Iraqi detainee. In one photo, a British soldier was pictured urinating on a hooded man. In another photograph the hooded man was being hit with a rifle.
They came after the release of photographs which showed actual abuse of Iraqi detainees by American forces at Abu Ghraib prison near Baghdad.
General Sir Mike Jackson, chief of the general staff, angrily condemned the alleged mistreatment and promised a full investigation.
But doubts over the pictures' authenticity were raised almost immediately. Military police later discovered that the lorry shown in the photographs had never been used in Iraq, and questions were also raised over the pictured soldier's uniform.
The Daily Mirror issued an apology two weeks after publishing the pictures. The newspaper's editor, Piers Morgan, stood by what he considered to be a major scoop, and attempted to tough out the row. However he was sacked over the decision.
Mr Morgan said yesterday that he remained "highly sceptical" over claims that the photographs were hoax. "If they're fake - and I say the jury's out on this - then could we please have the name of the man who faked them?" he said.
Earlier this week, another legacy of his tenure at the Daily Mirror was resolved in court when two journalists he employed on the City Slickers share-tipping column were found guilty of manipulating the stock market six years ago.
The case against Mr Morgan, who bought shares in a technology company the day before they were written about in the column, was dropped by the Department of Trade and Industry.
Pte Mackenzie, from Haslingden, Lancashire, went to Iraq with the Territorial Army, attached to the 1st Battalion, the Queen's Lancashire Regiment.