One week after police swooped on their home in Forest Gate, Mohammed Abdul Kahar, 23, who was shot in the shoulder during the raid, and his brother Abul Koyair, 20, were freed.
Both had been detained under the Terrorism Act 2000, suspected of being involved in a plot to make a chemical device that could be used in a terrorist act.
They had denied any involvement in a terrorist plot and the raid, which involved 250 officers, some dressed in chemical suits, has attracted severe criticism from the local community and prominent Muslim leaders.
The operation will also raise questions about the accuracy of the intelligence used in the raid and the role of the intelligence agencies.
A Metropolitan Police spokesman said: "The intelligence received by police continues to be developed and we will continue to exhaust all lines of inquiry. As we look forward, we will continue to engage with all communities and respond to issues that are raised."
The release will also be potentially embarrassing for the Government after Tony Blair had said earlier this week he was "101 per cent" behind the police.
John Reid, the Home Secretary, defended the police last night. He said: "The police are acting in the best interests of the whole community in order to protect the whole community and they, therefore, deserve the support of the whole community in doing what is often a very hazardous and dangerous job, often involving difficult decisions."
On Thursday, Assistant Commissioner Andy Hayman had apologised for the disruption and inconvenience caused by the raid, but insisted the police would have been failing in their duty to protect the public had they not acted on the intelligence they received.
Last night, there was a mixture of criticism and support for the tactics employed by the Met. A crowd of more than 100 demonstrated in Forest Gate yesterday before the two men were released - although the family of the brothers had asked people instead to support a peaceful community demonstration on Sunday, 18 June in London.
The Independent Police Complaints Commission is investigating the circumstances of the shooting. Some reports suggested Mr Kahar had been shot while struggling with an officer while another report said a firearms officer had been unaware that he had fired a shot because he was wearing thick gloves.
The solicitor for the shot man said Mr Kahar was hit without a struggle and without warning during the raid eight days ago.
Dr Muhammad Abdul Bari, Secretary General of the Muslim Council of Britain, said: "This decision to release the brothers without charge confirms their innocence and we hope the appropriate lessons will be learned by all involved in this tragic incident.
"This is not a matter of apportioning blame but trying to ensure the foundations are in place to maintain trust and build a partnership between the Muslim community and the police."Reuse content