At Belfast High Court on Friday a judge ruled there was a "real prospect" that the atrocity could have been prevented.
Mr Justice Mark Horner recommended that both the UK and Irish governments carry out investigations into the bombing.
“I am satisfied that certain grounds when considered separately or together give rise to plausible allegations that there was a real prospect of preventing the Omagh bombing," he said.
The Real IRA, an IRA splinter group, planted a 500lb (226kg) bomb inside a car and parked it at the bottom of Market Street, where shoppers went about their business on a busy Saturday afternoon.
Giving notice, the terrorists called authorities to tell them they had planted a device.
But they told police it was located outside the court house, at the top of Market Street, rather than at the bottom of the road.
As officers evacuated the area near the court house they unwittingly moved people into the path of the bomb.
The bomb exploded at around 3.10pm, killing 29 people on both sides of the community, including nine children, a woman pregnant with twins and three generations of one family.
More than 200 people were injured as shrapnel and debris flew through the air.
The windows of houses on the outskirts of the town shook after the bomb detonated, in what was the single biggest atrocity in the history of the Troubles, which claimed more than 3,500 lives over three decades.
Why did the Real IRA bomb Omagh?
The Real IRA formed in 1997 after the IRA announced a ceasefire, as negotiations on the Good Friday peace deal drew to a close.
Former prime minister Tony Blair had set out conditions saying that republican party Sinn Fein would not be included in any future power-sharing government unless the IRA put down its arms.
The Real IRA was opposed to the ceasefire and the Belfast Agreement and it blew up Omagh some four months after the deal was signed.
Has anyone ever been convicted for the bombing?
No one has ever been convicted of the atrocity.
Following a civil trial four men - Liam Campbell, Colm Murphy, Seamus Daly and Michael McKevitt - were in 2009 found liable for the bomb.
McKevitt was released from prison in 2016 after serving a 20-year sentence for directing terrorism and membership of an illegal organisation.
He died in January 2021 following a cancer diagnosis.
Why has a judge said the atrocity could have been prevented?
Eight years ago, Michael Gallagher, whose son Aiden was killed in the blast, launched the judicial review against the UK government's refusal to order a public inquiry into security failings prior to the bombing.
In the legal case, Mr Gallagher claimed that intelligence from British security agents officers from the now-defunct Royal Ulster Constabulary could have been drawn together to prevent the dissident republican bombing.
On 4 August, 11 days before the bombing, the RUC received an anonymous telephone call warning there would be an "unspecified" terrorist attack on police in Omagh on 15 August.
The force's Special Branch, which handled intelligence from agents, took limited action on the information and a threat warning was not sent to the sub-divisional commander in Omagh, an investigation by former police ombudsman Baroness Nuala O'Loan found.
An RUC review concluded in 2000 that the information should have been passed to the commander.
Responding to the judgment, current Northern Ireland secretary brandon Lewis said: "The Omagh bombing was a terrible atrocity that caused untold damage to the families of the 29 people who were tragically killed and the 220 who were injured. The reverberations of that awful event were felt not just in Northern Ireland, but across the world.
"I want to put on record my deep regret that the families of those killed and wounded have had to wait so long to find out what happened on that terrible day in 1998. They deserve answers and I have great respect for their patience, grace and determination.
"We recognise that today the court has set out that there are 'plausible allegations that there was a real prospect of preventing the Omagh bombing' and that more should be done to investigate this.
"The UK government will take time to consider the judge's statement and all its recommendations carefully as we wait for the full judgment to be published."
Mr Justice Horner also encouraged the Irish government to conduct an investigation, given "consideration of terrorist activity on both sides of the border by prominent dissident terrorist republicans leading up to the Omagh bomb."
Responding to the judgment, Taoiseach Micheál Martin said the Irish government would do what is "necessary" following the ruling.
"We will analyse that judgment and we will do what is necessary in terms of the citizens on the island of Ireland," he told reporters.
"I always stand ready to have an open book in terms of any atrocity that was committed which had a cross-border dimension to it in terms of following through in any way we can through the provision of information or indeed to vindicating the rights of people and citizens.
"So, a very open book in terms of how we proceed with this now, but we've got to examine the options that are available to us in respect of the conclusions."
Speaking after Friday's hearing Mr Gallagher described the ruling as "absolutely amazing".
"We feel vindicated, this has been a great day for the families," he said."We just hope that both the British and Irish governments, as the judge has recommended, will look at these issues and move them forward very quickly."
Mr Gallagher added: "We knew from, really, over 20 years, that this was a preventable atrocity, but it's one thing for me to say it, it's an entirely different thing for a senior High Court judge to.
"I just felt sadness on one side and relief on the other that, you know, we got it right and people have looked at this and believed us."
Additional reporting by Press Association
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