The Home Secretary Theresa May today lost her legal challenge to a coroner's refusal to hold closed sessions of the 7/7 inquests to hear top-secret evidence.
Coroner Lady Justice Hallett earlier rejected calls from MI5 and the Home Secretary for the families of those killed in the 2005 London bombings to be excluded from hearings while she examines highly sensitive intelligence material.
Lord Justice Maurice Kay and Lord Justice Stanley Burnton upheld the coroner's ruling at the High Court today.
The judges announced their decision in a brief hearing and will give their full reasons at a later date.
The Government could now attempt to appeal against the decision or use powers to transform part of the inquest into a public inquiry, which could examine the secret documents in closed hearings.
Lady Justice Hallett, an appeal court judge appointed to hear the 7/7 inquests, concluded that she had powers under Rule 17 of the Coroners Rules 1984 to exclude the public from hearings in the interests of national security.
But she ruled that this did not include "interested persons", such as the bereaved relatives, who are legally entitled to be represented at the inquests.
The coroner said the secret documents could be edited to remove names of sources and other confidential information.
"I am still hopeful that, with full co-operation on all sides, most if not all of the relevant material can and will be put before me in such a way that national security is not threatened," she said in her ruling on November 3.
"Sources' names may be withheld, redactions made. I do not intend to endanger the lives of anyone. I do not intend to allow questions which might do so."
Lawyers for Mrs May and MI5, also known as the Security Service, went to the High Court last week seeking a judicial review of Lady Justice Hallett's ruling.
They argued that the coroner would not be able to reach accurate conclusions about MI5's involvement in tracking the 7/7 bombers without seeing the secret evidence, which cannot be revealed in open sessions.
James Eadie QC said: "This is not an attempt by the Security Service to avoid or to minimise the scrutiny of their actions by the coroner by citing the need to protect national security.
"The position is entirely to the contrary."
Section 17A of the Coroners Act 1988, as amended in 1999, gives the Lord Chancellor power to adjourn an inquest if the death is being investigated by a public inquiry.
This provision was controversially used in the case of Azelle Rodney, 24, who was shot dead by police in London in 2005, after the inquest into his death stalled over the release of secret evidence.
But Mr Eadie said last week there were "serious potential practical problems" with going down this route.
The inquests into the deaths of the 52 innocent people murdered in the 2005 attacks in London are examining alleged failings by police and MI5.
Bereaved families want to ask intelligence officials why they did not follow up plot ringleader Mohammed Sidique Khan and his right-hand man, Shehzad Tanweer, after surveillance officers watched them meeting known terror suspects 17 months before the bombings.
MI5 argues this is both unnecessary and impossible because doing so would require the disclosure of top-secret files.
Human rights campaign group Liberty, which opposed the Home Secretary's judicial review application, hailed today's ruling a "milestone for open justice".
Liberty legal officer Corinna Ferguson said: "The whole point of an inquest is that those most affected by untimely death should have some answers to why it happened and reassurance that lessons will be learned for the future.
"A secret inquest would have been a contradiction in terms.
"No one doubts that the security agencies do vital and sensitive work, but they also need to respect the ultimate role of the courts in upholding the rule of law."
A Home Office spokesman said: "The Government is committed to co-operating fully with the coroner's inquiry.
"Along with many victims' families, we believe a closed hearing for a small part of the July 7 inquests would be the best way for the coroner to consider as much information as possible.
"The court has decided this is not possible and we will consider the judgment carefully."
Clifford Tibber, of Anthony Gold Solicitors, representing six bereaved families at the inquests, said the judges' decision was a "further endorsement of the principle of open justice".
"It is right that those who lost their loved ones should be able to see and hear all the evidence," he said.
"The Home Secretary's attempts to introduce secret hearings at inquests have failed twice in Parliament and twice in the courts.
"It is difficult to understand what information, six years on, is so sensitive and so critical that it can not be made available to the families in some form."
He added: "As we have said many times, our clients just want the Security Service to produce all of the evidence so that the bereaved and the public can learn the truth about what happened, whether lessons have been learned and implemented and whether the bombings could have been prevented."Reuse content