Police said it was a miracle no-one was killed in the explosion outside Newry courthouse in Co Down shortly after 10.30pm yesterday.
Today First Minister Peter Robinson and deputy First Minister Martin McGuinness condemned the attack.
But Chief Constable Matt Baggott was forced to reject Ulster Unionist accusations that police were underestimating the threat presented by dissident groups violently opposed to the peace process.
The entrance of the heavily fortified court complex was badly damaged in the explosion, which occurred close to restaurants and bars as police were still evacuating the area.
Mr Baggott revealed his officers had only 17 minutes to clear nearby buildings before the bomb exploded.
"There is absolutely no excuse for bringing bombs on to our streets in any shape or form, but added to that, the timing which we were given was severely limited," he said.
"This is an attack which broke and damaged places of worship, this is an attack which has damaged the ability of Newry to be at the heart of our economic success, so this is much much more than simply an attack on a court building."
Police were tonight responding to further bomb alerts in north Belfast and in Lurgan, Co Armagh.
The Newry attack was the first since the Democratic Unionist Party (DUP) and Sinn Fein successfully brokered the Hillsborough political deal to stabilise the power-sharing administration led by the two parties.
First Minister Mr Robinson said: "The people who carried out this attack are determined to destroy all that has been achieved in recent months.
"Their sole aim is to return Northern Ireland to its darkest past.
"They will not succeed for I am equally determined that we will continue to move forward and to protect and defend the very same institutions they seek to destroy."
Mr McGuinness said: "I am determined that last night's attack will not undermine the progress we have made.
"The perpetrators are acting against the democratically expressed wishes of all of the people of Ireland.
"They have nothing to offer our society, we will continue on the road we have set out upon to deliver a better future.
"Attacks such as this are futile and serve only to strengthen our resolve."
Today's sitting of the Stormont Assembly opened with condemnations of the Newry attack.
But the deputy leader of the Ulster Unionist Party, Danny Kennedy, called for a strong security response.
"I and my party have been concerned for some time that the threats posed by republican dissidents have been viewed with a certain amount of complacency by the chief constable and his senior command, and by senior political figures including the Secretary of State for Northern Ireland, in the mistaken belief that these individuals (dissidents) were unrepresentative and lacked the manpower to cause serious problems," he said.
Mr Baggott rejected the claims, and said: "Everybody knows we have injected significant resources into bringing those people to justice.
"That work continues. There has been a big investment in that and we will continue to invest.
"We are far from taking the dissident threat complacently. We have got many more police officers back on the street, we are continuing to invest in the right capability and technology to tackle the dissident threat."
Northern Ireland Secretary Shaun Woodward, speaking from the United States, criticised Mr Kennedy's remarks.
He told the BBC: "It is absolutely unfair on the police who, half an hour before the bomb went off, went about clearing the area, taking huge personal risks."
Mr Baggott said police had arrested 130 people for dissident activity over the last 15 months.
He said his officers acted quickly and professionally in Newry.
The alarm was raised after the car carrying the bomb, originally estimated by police to be up to 800lb but later put at 250lb, was abandoned after being reversed against the gates of the court.
The blue Mazda vehicle carried registration plates from Co Monaghan.
Two coded bomb warnings were received at a local hospital and business, but residents near the scene claimed members of the public were walking past the area shortly before the explosion.
The gates of the court were blown off and a security hut was damaged, while nearby buildings including a church were hit by the blast.
Debris was strewn around the area, where police forensic teams examined the remnants of the car bomb. The scene is likely to be sealed off for two days.
Prime Minister Gordon Brown strongly condemned the bombers behind the Newry blast.
Irish foreign affairs minister Micheal Martin added: "This attack cannot be justified or excused. Its only purpose was to inflict suffering. Its perpetrators have no mandate or legitimacy."
Leader of the nationalist SDLP Margaret Ritchie, Alliance leader David Ford and leader of the loyalist Progressive Unionist Party Dawn Purvis all condemned the bombing.
The Newry bombing came three days after a failed mortar attack at a police station in the nearby village of Keady, Co Armagh.
Last March, dissidents gunned down two soldiers at Massereene army barracks, Antrim. Two days later they shot dead police constable Stephen Carroll in Craigavon, Co Armagh as he answered a call for help.
Meanwhile, in September police discovered a 600lb bomb in the south Armagh village of Forkhill.
Last month a Catholic police officer was seriously injured in a car bomb attack in Co Antrim while a number of police stations have been shot at several times in recent weeks.
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