Prime Minister David Cameron today promised action to "get to the bottom" of the phone hacking scandal but said it was not just about the press but about the police and "about how politics works too".
Mr Cameron spoke out as as shockwaves from the scandal, which forced the closure of the 168-year-old News of the World last night, continued to reverberate.
He said a judge would be appointed to run an independent inquiry into how the scandal was allowed to happen, adding: "No stone will be left unturned."
Mr Cameron said a second inquiry would be held to examine the ethics and culture of the press and said that the Press Complaints Commission had failed, adding: "I believe we need a new system entirely".
Accepting some of the blame, Mr Cameron said party leaders "were so keen to win the support of newspapers we turned a blind eye to the need to sort this issue."
His comments came as his former communications chief and News of the World editor Andy Coulson was facing arrest over alleged phone hacking and illegal payments to police officers.
Mr Cameron said the decision to hire Mr Coulson was "mine and mine alone", adding: "I take full responsibility for it."
The Prime Minister said the bulk of the first inquiry, which would also cover other newspapers and the failure of the first Scotland Yard investigation into phone hacking, could not be carried out until after the new police probe was complete.
But he said a second inquiry would begin immediately into the culture, ethics and practices of the British press.
"Police investigations can only get you so far," he told a Downing Street press conference.
"What people really want to know is what happened and how it was allowed to happen.
"That is why the Deputy Prime Minister (Nick Clegg) and I have agreed it's right and proper to establish a full public inquiry to get to the bottom of what happened.
"A judge needs to be in charge so there is no question that it's totally independent and things are done properly."
Amid demands from Labour leader Ed Miliband to apologise for hiring Mr Coulson, Mr Cameron said he took "full responsibility" for the decision but said others would judge whether it was the right decision to give him a second chance.
Mr Cameron also intensified pressure on News International chief executive Rebekah Brooks, who was editor of the News of the World at the time of Milly Dowler's phone being hacked.
Referring to reports that she had offered her resignation, he said: "In this situation I would have taken it."
Mr Cameron said that the Press Complaints Commission had shown itself to be "ineffective and lacking in rigour" and there was a need for an entirely new system of regulation for the press.
He said that the judge-led inquiry would look into the questions of "why did the first police investigation fail so abysmally; what exactly was going on at the News of the World and what was going on at other newspapers?"
He added: "Of course the bulk of this inquiry can only happen when the police investigation has finished. That is what the law requires.
"But we that doesn't mean we can't do anything now. So we will consult now with the select committees and others on the terms of reference, the remit and the powers. What we can get started, we will get started.
"I want everyone to be clear that everything that happened is going to be investigated. The witnesses will be questioned by a judge under oath and no stone will be left unturned."
Mr Cameron said an inquiry into the wider lessons for the press, including the future of its regulation, could be got on with "straight away".
"I want to establish a second inquiry to begin at the earliest available opportunity, ideally now - this summer," he said.
That inquiry would be conducted by a panel of figures from "a range of different backgrounds who command the full support, respect and above all confidence of the public".
He said: "This second inquiry should look at the culture, the practices and the ethics of the British press.
"In particular, they should look at how our newspapers are regulated and make recommendations for the future."
Mr Cameron said the Press Complaints Commission had "failed" and, in the case of phone hacking allegations, been "completely absent".
He said: "There is a strong case for saying it is institutionally conflicted, because competing newspapers judge each other. As a result, it lacks public confidence.
"So I believe we need a new system entirely.
"It will be for the inquiry to recommend what that system should look like. But my starting presumption is that it should be truly independent - independent of the press, so the public will know that newspapers will never again be solely responsible for policing themselves."
On the prospective takeover of BSkyB by Rupert Murdoch's News Corp, Mr Cameron said this would now take "some time" to decide after recent events.
Culture Secretary Jeremy Hunt was following "the proper legal processes and procedures", he said.
"His role is to take the advice of independent regulators and, as his department have made clear this morning - given the events of recent days - this will take some time."
Mr Cameron acknowledged that the relationship between politicians and the press had become too close.
"It is no good just pointing the finger at this individual journalist, or that individual newspaper. It's no good, actually, just criticising the police.
"The truth is, we have all been in this together - the press, politicians and leaders of all parties - and yes, that includes me.
"We have not gripped this issue."
He added: "It is difficult for politicians to call for more regulation of the media, because if we do so, we're accused of wanting to stifle a free press or even free speech.
"But the deeper truth is this: there is a less noble reason.
"Because party leaders were so keen to win the support of newspapers we turned a blind eye to the need to sort this issue, get on top of the bad practices, to change the way our newspapers are regulated."
He said the scandal was a "wake-up call" and added: "Over the decades, on the watch of both Labour leaders and Conservative leaders, politicians and the press have spent time courting support, not confronting the problems.
"Well, it's on my watch that the music has stopped and I'm saying, loud and clear - things have got to change."
He defended his decision to hire Mr Coulson and insisted his work for the Tories and in No 10 had not been a cause for concern.
"He resigned from the News of the World because of the things that happened on his watch. I decided to give him a second chance - and no one has ever raised serious concerns about how he did his job for me.
"But the second chance didn't work out and he had to resign all over again.
"The decision to hire him was mine - and mine alone - and I take full responsibility for it."
On Mrs Brooks, Mr Cameron said: "It has been reported that she offered her resignation over this and in this situation I would have taken it."
Mr Cameron said a new press regulatory system "should be truly independent" and uphold "proper, decent standards".
The regulator should be "independent of the press, so the public will know that newspapers will never again be solely responsible for policing themselves.
"But vitally, independent of government, so the public will know that politicians are not trying to control or muzzle a press that must be free to hold politicians to account.
"This new system of regulation must strike the balance between an individual's right to privacy and what is in the public interest.
"And above all, it should uphold the proper, decent standards that we expect."
Mr Cameron said it was not for him to decide whether Mr Murdoch's purchase of the remainder of BSkyB should be allowed to go ahead.
"There are proper organisations and procedures for mergers and takeovers in this country," he said.
"I know people have concerns about things like plurality: they have concerns about competition, they have concerns about who is fit and proper and right to own a newspaper or run a broadcasting licence.
"I think it is very important that this is done in the proper way on advice from the proper bodies. It's not appropriate for a Prime Minister to say 'I would quite like that person to own a newspaper but not that person, that organisation to win a broadcasting licence but not that person'.
"That would take us to a very dangerous place.
"What we have in this country is proper bodies to look at competition, plurality, fitness and properness. They must all do their job, based on the relevant and up-to-date information and they must all make their views known."
Challenged over whether he had been slow to speak out over the problems at the News of the World, Mr Cameron said it was "very easy for politicians to point the finger".
And he added: "The fact is that politicians have not spoken up about it and they needed to.
"This is a wake-up call and the question is, are you awake, are you doing something about it, have you got a comprehensive plan to put things right? As I've set out this morning, I believe that I have."
Responding to reporters' questions, Mr Cameron insisted he commissioned a firm to carry out a background check before employing Mr Coulson, whom he described as a "friend".
The Prime Minister said he had seen his former spin doctor since he exited Downing Street.
Mr Cameron said: "I don't know what these people at News International did know or didn't know. Frankly, I don't think any of us know what they did know or didn't know.
"The key thing is they are going to be investigated by the police and when they get investigated by the police and when the truth is out, it won't be a question of whether or not they have jobs or whether or not they resigned from those jobs, it's a question of whether they are going to be prosecuted, whether they are going to be convicted, whether they are going to be punished."
Mr Cameron said: "I took a conscious choice to give someone who had screwed up a second chance. He worked for me, he worked for me well, but actually he decided in the end the second chance wouldn't work, he had to resign all over again for the first offence."
Asked what inquiries he had made before employing Mr Coulson, the Prime Minister said: "No one gave me any specific information. Obviously I sought assurances, I received assurances. I commissioned a company to do a basic background check, but I'm not hiding from the decision I made.
"I made the decision, there had been a police investigation, someone had been sent to prison, this editor had resigned, he said he didn't know what was happening on his watch but he resigned when he found out, and I thought it was right to give that individual a second chance."
The Prime Minister said he and Mr Coulson spoke before Christmas about him leaving Downing Street.
"It wasn't in the light of any specific thing, it was a sense that the second chance wasn't working," he said.
"He had been given a second chance, he was doing, I thought, a very good job working very hard for the Government of the country, but was finding it very difficult to do his job because of all the swirling accusations about the News of the World.
"And so the conclusion he came to, I think rightly, was 'the second chance is not working, I have got to resign all over again for what happened back then'."
Mr Cameron said they discussed the hacking allegations while he was employed but he never had reason to doubt "the assurances he had given me and I accepted".
Of their contact since Mr Coulson's January resignation, he added: "I have spoken to him, I have seen him, not recently and not frequently, but when you work with someone for four years as I did, and you work closely, you do build a friendship and I became friends with him.
He added: "He became a friend and is a friend."
Mr Cameron said he had been given "assurances" by Mr Coulson when taking him on as his communications chief that he knew nothing about the hacking at the News of the World.
It had not yet been proved whether those assurances were false, he said.
But he raised the prospect that prosecutions may be brought against many of those caught up in the hacking affair.
"I sought specific assurances, but also some general assurances," said the Prime Minister.
"There was a series of conversations and meetings we had after he resigned from the News of the World and before he came to work for me.
"The truth is, I asked for assurances. He gave me assurances. He said he had resigned because of what had happened, but he didn't know the hacking had taken place.
"Frankly, as we stand today, with a police investigation under way, we don't all know in this room - I certainly don't know - who at News International knew what about what.
"That has now got to take place and then people will be able to see not whether people were right to resign from their jobs but whether people actually are going to be prosecuted and found guilty of something worse."
Mr Cameron added: "Potentially, we could have many more criminal cases."
Challenged over claims from Guardian editor Alan Rusbridger that he warned Mr Cameron's office that Mr Coulson was linked to a private investigator who was on trial for murder, the Prime Minister said he did not recall being given "any specific action or information about Andy Coulson" but would check with his officials.
He insisted that the judge-led inquiry cannot start taking evidence until after police investigations are concluded.
"You can't start a full-on judge-led inquiry, questioning people about what happened at the News of the World, while those witnesses are also being questioned by police. It simply doesn't work," he said.
"I want to get this sorted out as soon as possible and I am champing at the bit to get the inquiry into press regulation and press ethics set up. I am champing at the bit to get the judicial full public inquiry set up. I want us to get these things sorted.
"This is a black cloud that is hovering over the the press, over Parliament, over the police. We have got to remove this cloud by dealing with the problem and I am absolutely determined to do it."
Mr Cameron was asked whether James Murdoch remained a fit and proper person to run a large company, following his admission yesterday that he personally approved out-of-court payments in a way which he now accepted was wrong.
The Prime Minister replied: "I read the statement yesterday. I think it raises lots of questions that need to be answered and these processes that are under way are going to have to answer those questions."
Mr Cameron also said "there may be room" for him to be more transparent about his meetings with journalists and press proprietors.
Asked whether the closure of the News of the World was correct, Mr Cameron said: "It's not the paper, it's the practices. What needs to change is not the name of the newspaper or the title or the letterhead.
"What needs to change is the practices that go on and to make sure they are all legal and properly accounted-for and properly managed."
He said the crisis could prove to be a "cathartic moment" for the press and Westminster.
He said: "You are bound to, as a party leader, want to have a relationship with journalists, with editors, with broadcasters, with proprietors.
"You do that because you have a mission to try and explain how you want to change and improve our country.
"And if that means talking to the head of the BBC, the editor of the Guardian or Rupert Murdoch, you get out there and do it and that is what I have done for the last five years.
"The regret that I have, the problem that I think we are all now correctly identifying, is that because leading politicians feel so passionately about wanting to get that message across, wanting that strong relationship not just with the Murdochs but with every broadcasting organisation, is we don't actually stop and spend enough time asking: is this organisation behaving properly, is the media properly regulated, are problems being uncovered by other organisations that need to be dealt with?
"That, if you like, is the problem. It's not the nature of the interaction, it's the failure to actually ask the fundamental questions about media regulations, media practices and the rest of it.
"That isn't just about the relationship with News International, that applies to everybody ... I think we have a genuine opportunity, this is a cathartic moment for politicians and media groups and journalists."
The inquiries would be "difficult for everybody" and would come up with a new system of press regulation and then politicians would have to "step up to the plate ... and stop just trying to curry favour with the media but instead regulate properly".
Mr Miliband said the Prime Minister "clearly still doesn't get it".
The Labour leader said: "He is ploughing on regardless on BSkyB. He failed to apologise for the catastrophic mistake of bringing Andy Coulson into the heart of government.
"His wholly unconvincing answers of what he knew and when he knew it about Mr Coulson's activities undermine his ability to lead the change that Britain needs."Reuse content