MI5 officers will have to give evidence to the 7 July inquests publicly, after the coroner rejected a plea from the Home Secretary to hold closed hearings.
Theresa May had asked that evidence from members of the security services, and from intelligence documents, be heard in private, citing a threat to national security if the material were to be made public.
But yesterday Lady Justice Hallett refused the request, saying she had no power to stop family members of the 52 people who died in the London bombings in 2005 attending the inquests of their loved ones. The Home Office will probably appeal against the decision.
The Government applied for closed hearings on the grounds that some evidence was "never going to see the light of day" and was "so secret its revelation would threaten national security".
It is already known that two of the bombers, Mohammad Sidique Khan and Shehzad Tanweer, had previously come to the attention of MI5 when they were seen meeting a now convicted terrorist, but were dismissed as "small-time fraudsters".
It is believed that the material MI5 is worried about submitting includes the techniques involved in obtaining intercept material and the names of covert sources who may have provided information in the lead-up to 7 July. The service is also keen to protect sensitive material gathered from telephone intercepts, informers inside Islamist groups and intelligence supplied by foreign services.
Lady Justice Hallett said she would allow the security services to redact the information before presenting it as evidence, and ruled that she would sit in private to consider material which the Government did not want in the public domain, as well as any redactions deemed necessary.
But she ruled that, once she had viewed material with potential security issues to decide whether it qualified for Public Interest Immunity status, it would be either admitted as evidence or not heard at all. No evidence would be heard in secret.
She said: "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."
Referring to the fears that her ruling could jeopardise national security, she added: "I am all too aware, given the events of the weekend, of the unenviable task facing the security services.
"I repeat, 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."
Clifford Tibber, whose firm represents six bereaved families, said: "The families who we represent are delighted that they will be able to see and hear all the evidence.
"Our clients rely on the full co-operation of the Security Service to help them understand what decisions were taken [and] whether anything more could have been done to prevent the bombings and what lessons can be learned for the future."
A Home Office spokeswoman said: "We will consider the coroner's ruling carefully."