Why was investigation halted, and what do critics say?

What was the Serious Fraud Office investigation about?

The SFO has spent more than two years investigating the huge Al Yamamah arms deal, first awarded in the 1980s, between Britain and Saudi Arabia. Officials have been investigating allegations that BAE Systems set up a multibillion-pound slush fund to bribe Saudi officials and businessmen during the 1980s. BAE Systems has consistently denied any wrongdoing. The deal, Britain's biggest arms contract agreed in 1985 by the prime minister at the time, Margaret Thatcher, covered Tornado and other military aircraft and a range of equipment, bases and spares.

Why was the investigation halted?

Ministers say that the decision to halt the SFO inquiry was made on grounds of "national security and intelligence" and maintaining relations between Britain and Saudi Arabia, arguing that "the continuation of this investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic co-operation. They insist that economic considerations were not a factor. The Attorney General Lord Goldsmith also concluded that there were "obstacles" that made it unlikely that the investigation would lead to a successful prosecution.

Tony Blair yesterday defended the decision, saying that allowing the investigation to continue would lead to years of "ill feeling" between Britain and a key ally.

What led up to the inquiry being abandoned?

The decision to halt the SFO inquiry came amid intense pressure from the Saudi government, the defence industry and some MPs. The Saudis are said to have been angry that the SFO was seeking details of Swiss bank accounts linked to the deal, sparking reports that the Saudi government was planning to pull out of a £6bn deal to buy Eurofighter Typhoon jets.

Business leaders, led by the Rolls Royce chief executive Sir John Rose, warned this month that tens of thousands of jobs were at risk if the inquiry was not resolved.

Who took the decision to halt the investigation?

The SFO released a statement on Thursday that it had decided to discontinue its investigation "following representations that have been made to the Attorney General and the director."

Lord Goldsmith's surprise statement to the House of Lords on Thursday evening said that the decision to halt the SFO inquiry was taken by the organisation's director Roger Wardle. He insisted that it was not a political decision. However, he confirmed that he had consulted the Prime Minister, the Foreign Secretary Margaret Beckett and the Defence Secretary Des Browne.

Lord Goldsmith also confirmed that he had spent "days" with investigators and lawyers trying to establish whether the investigation was likely to end in a prosecution.

What do the critics say?

Critics, led by the Liberal Democrats, have accused the Government of caving in to Saudi pressure to drop the investigation.