Defence Secretary Liam Fox apologised today to the families of the pilots in the Mull of Kintyre helicopter crash after a new report cleared them of an earlier finding of negligence.
The fresh review concluded that Flight Lieutenants Jonathan Tapper and Richard Cook should not have been blamed for the accident in 1994.
Dr Fox said he had written to the relatives of the airmen to apologise for the distress caused to them by the RAF's original findings that they were guilty of "gross negligence".
He told the Commons: "I hope that this report, and the action I have taken in response to it, will bring an end to this very sad chapter by removing the stain on the reputations of the two pilots."
Today's announcement follows years of campaigning by the men's families, backed by politicians of all parties, to clear their names.
Flight ZD 576 crashed into the side of a mountain on the Scottish island in dense fog on the night of June 2, 1994, killing all 29 people on board, including the four crew.
The passengers included some of the UK's leading counter-terrorism experts who were flying from Belfast to attend a conference in Inverness.
After an RAF board of inquiry found the most probable cause was the selection of the wrong rate of climb over the island, a report by two air marshals - Sir William Wratten and Sir John Day - concluded the pilots were "negligent to a gross degree".
However a Scottish fatal accident inquiry concluded it was impossible to establish the exact cause of the crash, while the RAF verdict was also criticised in separate House of Commons and House of Lords committee reports.
Successive defence secretaries resisted pressure to reopen the case, but in May last year, Dr Fox announced he was ordering a review of the evidence, honouring a pledge made while the Conservatives were in opposition.
Lawyers for the family of Flt Lt Cook welcomed the new report's findings.
Solicitor Peter Watson, from Glasgow-based Levy and McRae, said: "The initial Board of Inquiry findings were ordered to be altered by senior officers who had not taken part in the inquiry. Many will find this extraordinary.
"The version of the Chinook which crashed had been newly introduced to service and had suffered many technical problems. Indeed, the RAF themselves pursued claims for compensation arising from faults.
"Those who ordered a finding of gross negligence have now been shown to have acted wrongly.
"They need to explain their conduct which has caused such hurt to the families and damaged the reputation of two fine pilots."
Former prime minister Sir John Major said the evidence to support the original finding of negligence was "always questionable".
"I warmly congratulate Liam Fox for exonerating the pilots from blame," he said.
"Natural justice demanded this outcome, which I am sure will be a great comfort to their families as they - and others - continue to mourn the loss of the brave people who lost their lives over the Mull of Kintyre, in the service of their country."
The SNP's leader in Westminster and defence spokesman Angus Robertson said: "After 17 years, justice has finally been done for Flight Lieutenants Jonathan Tapper and Richard Cook.
"It is a tribute to their families that the MoD has finally been made to clear their names and apologise for the distress that was caused over a prolonged period.
"Given that, even before Lord Philip's review, the initial RAF internal findings, the Fatal Accident Inquiry, and a House of Lords report all concluded that there was no evidence the pilots were to blame, it should never have taken this long to put things right."
Shadow defence secretary Jim Murphy said it was important to "learn the right lessons" from what had happened.
He said: "We welcome today's decision that previous conclusions of gross negligence must be set aside and we support and echo the apology offered to the families of the pilots.
"Previous decisions were taken in good faith. However, the air marshals who made the decision were not correctly informed. Gross negligence can only be attributed where there is no doubt whatsoever; but in this case the burden of proof required was not evident.
"It now appears that successive secretaries of state, first from the Conservative government and then from the Labour government, were misdirected, briefed on inaccurate assumptions and came to unsustainable conclusions.
"We will work with the Government wherever possible to try to ensure these events are not repeated."
Alan Reid, Liberal Democrat MP for Argyll and Bute, said: "So many people - friends and family of the pilots, my predecessor Ray Mitchie, and others - campaigned for many years to overturn the original verdict which found the two young pilots, who died doing their duty, guilty of gross negligence.
"This review is long overdue.
"Where the previous Labour government stalled and obstructed, the coalition Government has ensured that justice has been done."
The Right Rev David Arnott, moderator of the General Assembly of the Church of Scotland, said: "I am so happy for them that the names and reputations of these two men have finally been restored. At last, justice has been done."
The case of the pilots was drawn to the attention of the 2003 General Assembly of the Church of Scotland when the Presbytery of Argyll brought a petition calling for the Ministry of Defence to review the disaster.