Calls were made for a full public inquiry today after the High Court ruled the Government and Serious Fraud Office "unlawfully submitted" to threats that there could be "another 7/7" unless they dropped bribery investigations involving BAE Systems and Saudi Arabia.
In a passionate and powerful judgment, two senior judges condemned the Government's "abject surrender" to the "blatant threats" that Saudi co-operation in the fight against terror would end unless the probe into corruption was halted.
The judges said: "We fear for the reputation of the administration of justice if it can be perverted by a threat."
They warned that any similar unlawful threats to the rule of law in the future must be resisted by Government - or the courts would again intervene.
Lord Justice Moses and Mr Justice Sullivan, sitting in London, declared: "No one, whether within this country or outside, is entitled to interfere with the course of our justice.
"The rule of law is nothing if it fails to constrain overweening power."
Submission to a threat was only lawful "when it is demonstrated to a court that there was no alternative course open to the decision-maker".
The ruling was an extraordinary victory for anti-bribery campaigners Corner House and the Campaign Against Arms Trade (CAAT), who had argued that the Serious Fraud Office (SFO) decision to stop the investigation was tainted by Government concerns about trade with Saudi Arabia and diplomatic considerations.
They accused the British authorities of giving in to blackmail and said the decision to drop the probe was illegal under the Organisation for Economic Co-operation and Development's (OECD's) Anti-Bribery Convention.
Giving their long-awaited decision, the judges said the man behind the threats was Prince Bandar, the head of the Saudi national security council and son of the crown prince.
He has been the subject of accusations that he took more than £1 billion in secret payments from BAE.
The SFO had launched an investigation into BAE's £43 billion Al-Yamamah arms deal with Saudi Arabia in 1985, which provided Tornado and Hawk jets plus other military equipment.
Tony Blair, prime minister at the time the investigation was scrapped in 2006, said the Saudis had privately threatened to cut intelligence co-operation with Britain unless the inquiry was stopped.
In December 2006, the then attorney general, Lord Goldsmith, announced the investigation into the arms company was to be discontinued but it was SFO Director Robert Wardle who took the decision.
Today the judges said Mr Wardle had failed to satisfy the court that all that could reasonably be done had been to resist the threats.
The judges said a Sunday Times article published last June stated that "Bandar (Prince Bandar bin Sultan bin Abdul Aziz of al-Saud) went into Number 10 and said 'get it (the SFO inquiry) stopped' (words omitted)".
At the time the SFO was investigating key bank accounts from Switzerland connected with allegations of payments of bribes by BAE.
The judges said Bandar suggested he knew the SFO was looking at the Swiss accounts and that "if they didn't stop it, the Typhoon contract was going to be stopped and intelligence and diplomatic relations would be pulled".
Government lawyers had contended that the SFO Director "was entitled to surrender to the threat" to prevent the possibility of the loss of "British lives on British streets".
Robustly condemning the Government and SFO stance, the judges said: "So bleak a picture of the impotence of the law invites at least dismay, if not outrage."
The threat had been made "by an official of a foreign state allegedly complicit in the criminal conduct under investigation" who had interests of his own in seeing the investigation stopped.
"Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice."
Submitting to the threat to readily might give rise to the suspicion that it was not the real ground for the decision but "a useful pretext", said the judges.
In the present case the decision to halt the investigation "suited the objectives of the executive" as it "avoided uncomfortable consequences, both commercial and diplomatic ..."
Speaking of the Saudis, he said: "It is not difficult to imagine what they would think if we attempted to interfere with their criminal justice system."
Downing Street refused to comment on the court's ruling, referring inquirers to the SFO, which said in a statement: "The SFO are carefully considering the implications of the judgment and the way forward.
"No further comment at this stage."
Tony Blair's office did not respond to requests for a comment.
Later Liberal Democrat leader Nick Clegg said the Government's actions had done "untold damage" to Britain's international standing, and the Attorney General's role must be "fundamentally reformed".
Mr Clegg added: "There is now a pressing need for a full inquiry into the SFO's decision to end the investigation and what pressure was brought to bear by the Government over that judgment."
Susan Hawley, of Corner House, said: "This is a great day for British justice.
"The judges have stood up for the right of independent prosecutors not to be subjected to political pressure and they have made sure that the Government cannot use national security arrangements just because a prosecution is not in their interests."
Symon Hill, of the Campaign Against Arms Trade (CAAT), said: "We are delighted. This judgment brings Britain a step closer to the day when BAE is no longer calling the shots.
"It has been clear from the start that the dropping of the investigation was about neither national security nor jobs.
"It was due to the influence of BAE and Saudi princes over the UK Government."
Alan Rusbridger, editor of the Guardian, said the ruling was "a triumph for the Guardian's long-running campaign over BAE.
"Our investigation into BAE's activity has revealed significant evidence that the company has engaged in large-scale corruption to sell arms overseas, and the ruling of the High Court is a moral and legal vindication of our position."
The two groups which brought the case insisted the judgment meant the SFO must reopen its investigation immediately, adding that the Government must not stand in its way.
Solicitor Richard Stein, who helped bring the case, said: "I think it has established a new role for courts in defending the independence of prosecutors from pressure and threat, both from our own Government and also from foreign governments."
Ms Hawley added, in a direct reference to Gordon Brown: "If he is serious about corruption, then he needs to show that Britain really means business and they are not going to pick and choose which cases are convenient to them and which aren't.
"In effect, the Government needs to back off and it would be a scandal if they try to intervene again and get this stopped on national security grounds."
Mr Hill, of CAAT, added: "During Tony Blair's time in Government, Robin Cook wrote in his diary that the head of BAE had the keys to the garden door at No 10. If Gordon Brown wants to show that things have moved on since those days, he needs to get the locks changed."
Mr Stein said that the SFO director would now have to justify any future decision in the light of the court's ruling.
If there was no agreement between the parties, there would be a subsequent hearing in two weeks when the court would make an order on how to proceed.
He added: "It is pretty uncontroversial that the order that the court will make is to quash the decision to discontinue, and therefore the director of the SFO will have to consider whether or not the investigation continues."
A Conservative spokesman said the High Court's ruling was "extremely troubling".
He said: "We were told, and Parliament was told, that national security was the reason for dropping this prosecution.
"We accepted this explanation in good faith - though of course we did not know then, and we do not know now, what specific information the Government has that would justify this claim.
"The Government has failed to persuade the Court that this was the true reason. Gordon Brown must now decide whether to appeal - or, if not, to make a statement to Parliament on the matter.
"More broadly, clearly the Saudi government has a duty to contribute fully to the international fight against terrorism.
"That means not just sharing intelligence information, but also tackling the sources of funding for extremists in British mosques - as David Cameron made clear to the King of Saudi Arabia when he visited the UK."Reuse content