Home Secretary Theresa May will not appeal against the ruling that top secret evidence cannot be heard in closed sessions during the July 7 inquests.
MI5’s argument that the coroner for the inquests has powers to hold closed sessions to hear top secret evidence was dismissed as “hopeless” by a senior judge last month.
Coroner Lady Justice Hallett had rejected calls from MI5 and Mrs May for the families of those killed in the 2005 London bombings to be excluded from hearings while she examines highly sensitive intelligence material.
A Home Office spokeswoman said: “The Government has made clear that it welcomes the coroner’s inquests and has said that the security service will co-operate as far as possible.
“This does not mean, though, that we will put lives at risk and undermine our national security by not protecting sensitive material.
“Along with many victims’ families, we believe a closed hearing for a small part of the July 7 inquests would be the best way for the coroner to consider as much information as possible.
“The court has decided this is not possible and we are not appealing this.
“It is clear to us from her judgment of November 3 that Lady Justice Hallett wants to protect national security and we will now work with her to take this forward and seek to explore a range of options to this effect.”
Lord Justice Maurice Kay and Lord Justice Stanley Burnton agreed with Lady Justice Hallett’s interpretation of Rule 17 of the Coroners Rules 1984, which allows a coroner to exclude the public from hearings in the interests of national security.
But they said this does not include “interested persons” who are legally entitled to be represented at an inquest, such as the relatives of the 52 victims of the 7/7 attacks.