Operation Kratos, the highly controversial policy put in place by the Metropolitan Police to deal with suicide bombers, is not for the faint-hearted. The word comes from the ancient Greek meaning might, power or strength. The name is not misplaced. On July 22 last year the operation climaxed with the tragic killing of 27-year-old Jean Charles de Menezes in a carriage deep underground at Stockwell tube station in London. The young Brazilian was innocent, shot seven times in the head by two undercover officers from Scotland Yard's elite firearms unit known as CO19. It was a disastrous case of mistaken identity.

But however terrible the events of that day, they have to be seen in their context. On July 7, suicide bombers had caused carnage in London when they attacked the tube and a bus leaving 52 dead and more than 700 injured. Two weeks later, four bombers struck again, although this time their bombs failed to explode. Three of them had originally left from Stockwell station. On the morning of July 22, four suspects were still at large and had to be located and stopped in case they struck again. The pressure on the police was enormous. One of the suspects was Hussain Osman, who was alleged to have left one of the failed bombs at Shepherd's Bush tube station. In the bag, a gym membership card was found that led police to a block of flats in Scotia Road, Tulse Hill, where they now believed Osman was living. They placed the flats under surveillance early that morning. De Menezes was living there too. As he left for work at 9.33 that bright summer morning, he was followed by undercover Special Branch teams who, after initial uncertainties, finally identified him positively, but wrongly, as Osman. At no stage on his 33-minute journey to Stockwell was De Menezes challenged, either on foot or on the bus.

Even as late as the last few minutes of his life, De Menezes's death might have been avoided. As the surveillance officers followed him down the escalator and on to the tube, they might have finally realised that he was not concealing a bomb. De Menezes wasn't carrying a bag and was only wearing a denim jacket that was unlikely to conceal explosives. But they had no way of transmitting the message - either to the CO19 officers who were following close behind or to Commander Cressida Dick who was running the operation from the Special Branch operations room at Scotland Yard. Their radios didn't work underground. One call from the surveillance officers to either party might possibly have saved De Menezes's life.

The fact that their radios were useless on the tube seems surprising. The Met had been preparing to counter the threat of suicide bombers in London for almost four years since 9/11 and had repeatedly asked the Home Office to provide radios that would work underground. The request seems understandable given that a suicide attack could well come on a deep-line tube where a bomber's deadly impact would be maximised. John Stevens says that when he was commissioner of the Met, he did all he could to persuade the Home Office to provide specialist radios. "It was a major issue, because if we did not have proper communication with our officers in the tube, we were going to have problems. In a fast-moving situation, you have to inform the officers involved what is taking place. Equally importantly, they have to get back in touch with you as to what they're doing and why they're doing it. It is absolutely key that communications are working."

Today the situation is no different. Police officers do have the new state-of-the-art "Airwave" radios, but they still don't work deep underground. The Home Office says contracts have still to be signed to put the necessary infrastructure in place.

There may be another possible reason why De Menezes was killed, despite the fact he was not seen to be carrying or wearing a bomb. I asked Chief Inspector Martin Rush, who runs the Met's firearms training centre at Gravesend, whether his officers actually have to see a suicide jacket, or what they think may be a suicide jacket, before they open fire. "No," he replied.

This is not the case in Israel, where suicide bombers have been a fact of life for years. I put the same question to Major General Mickey Levy, the police commander in Jerusalem from 2000 to 2004, who dealt with 42 suicide bombers in his time. He said his officers had to be sure they could see a suicide vest or explosives before they opened fire. In the vast majority of cases, he says, the suspects they confronted were indeed suicide bombers because the intelligence built up over so many years was so good. The Israelis stop roughly nine out of 10 suicide bombers before they can detonate their payloads.

So if the CO19 officers didn't see any bomb, why did they open fire? And how, if at all, were they authorised to do so? This question lies at the heart of the investigation conducted by the Independent Police Complaints Commission (IPCC), whose findings are now being considered by the Crown Prosecution Service. The CPS will decide whether any police officers should face prosecution. Although senior officers say that the final decision to use lethal force rests with the person who pulls the trigger, in reality, the ultimate responsibility may well lie elsewhere. Once a Kratos operation is under way, it is commanded by one of a number of specially trained and highly experienced officers at Scotland Yard known as "designated senior officers". One told me that he reassures the firearms officers under his command that if anyone ends up in the dock, it's him.

In running a Kratos operation, the DSO has a range of codewords to convey instructions to the CO19 officers on the ground. They culminate in one particular codeword that authorises the use of lethal force. But, in the end, the success or failure of the operation depends on the quality of the intelligence. It is primarily this intelligence, received and analysed in the Special Branch operations room at Scotland Yard, that determines how CO19 officers are instructed to act. According to assistant commissioner Steve House, who is now in charge of CO19 and Kratos, the role of the DSO is central. "The intelligence picture may be so fast-moving, with so many different intelligence strands coming in at any one time, that it needs someone at the centre to make a decision because only they are seeing the full picture. Therefore, yes, one of the ways it can work is that the designated senior officer would give the order to the officers on the ground to open fire." So does that mean that the DSO in effect pulled the trigger? "We believe that a good measure of responsibility for the decision does lie with the designated senior officer," he said.

So who bears responsibility for the death of Jean Charles de Menezes? The person in the most exposed position is Commander Cressida Dick, a highly regarded, Oxford-educated officer, who was DSO on the day of the shooting. Above all, she needed to know from her surveillance team if the suspect they had been following was Hussain Osman. For some time, there was uncertainty. However, this seems to have been eroded when the team saw him get off the bus at Brixton to catch the tube and, seeing that the station was closed, make a phone call before getting back on the bus again. They may have falsely interpreted this as a counter-surveillance measure, whereas in fact De Menezes was simply calling his Brazilian workmate, Gesio d'Avila, to say he would be late for the electrical job they were due to start in Kilburn because Brixton station was closed.

But it appears that the surveillance officers had made a positive identification before the bus reached Stockwell. I understand that Commander Dick then said something like, "Are you absolutely sure?", to which the answer seems to have been yes. She then activated the CO19 unit, who would have driven at high speed to Stockwell, probably at the very last minute. The $64,000 question is: what instruction did she then transmit to the surveillance and firearms teams at Stockwell? Did she do more than instruct CO19 to stop him entering the tube? Whether she used the code word authorising the use of lethal force is as yet not known. This is central to the IPCC's investigation.

Just days after 9/11, the Met recognised that London could be the target of a suicide attack and that the necessary resources, training and policy had to be in place as soon as possible. Deputy assistant commissioner Barbara Wilding (now chief constable of South Wales) became chair of the Met's suicide bomber working party, which soon took on a national perspective when it was pointed out that the bombers, like the IRA, might strike outside London. "It was within about 10 days of 9/11 that I was asked to review strategy and come up with a plan," says Wilding. "With Irish terrorism there always tended to be a warning and an escape plan. The IRA didn't want to die. They wanted to leave their bomb and live. With suicide terrorism, the target was innocent civilians. There was no escape plan at all. To live was to fail." She soon realised that London was totally unprepared for such an attack. "We had a huge gap and we had to fill those gaps as soon as possible."

One of the first things she and her team did was to visit Israel, Sri Lanka and Russia to learn from their experiences of dealing with suicide bombers. The most important lesson she brought back from Israel was the need to buy time - to identify the suspect through accurate intelligence and then to intercept the bomber as far away as possible from the intended target. "That's what the Israelis call their 'fighting time'," she says. "It can be two or three minutes or days or weeks or months and then once you've executed your plan, that's the end of the incident. The interventions have got to be covert because if bombers know they've been identified, they'll blow themselves up and probably take out innocent members of the public."

Many agencies became involved in the development of Kratos, including the Home Office, MI5, Special Forces, the MoD, the attorney general, the director of public prosecutions and Treasury lawyers. Legal advice was crucial, as fatalities seemed likely: officers were instructed to aim at the heads of suspected bombers because a shot at the chest might detonate any explosive vest.

The question was, would such exceptional circumstances still be covered by the existing law on the use of lethal force, which permits only such force as is "reasonable under the circumstances in the prevention of a crime"? The law applies to all citizens, including police officers. There are no special cases. It is therefore not surprising that a minute of a meeting of August 2 2002 records that "the legal issues surrounding the use of firearms in response to potential suicide bombers are very complex". Prophetically, one scenario envisaged by government lawyers refers to "police shooting a suspect without explosives". Recognition that Kratos had been eventually signed off operationally and legally was formally made at a meeting on January 22 2003 at MI5 headquarters. From that point it was up and running.

The problem on July 22 was that there was virtually no "fighting time" and, according to Barbara Wilding, it was not one of the scenarios the Met had planned for. Although Kratos policy has since been extensively revised under assistant commissioner House, on July 22 it covered only two narrow scenarios: Kratos, a spontaneous event in which a potential suicide bomber is suddenly identified by, say, a member of the public and there is no prior intelligence; and Clydesdale, where there is detailed intelligence about an attack on a specific target which means that the police have ample time to put their tactics in place. The situation on July 22 fell into neither category.

I asked Wilding if Stockwell fitted the Kratos scenario. "Did we look at a mobile intelligence-gathering operation going live?" she asked. "The answer is, no, we didn't. What we looked [at] on July 22, as I understand it, was somewhere in between." She confirmed that the operation that day was not one that had been planned for.

The De Menezes family are still stunned by what happened and the protracted failure of the authorities to provide any explanation. "An honest policeman who was doing his job properly would have spoken to my son first, stopped him and asked him where he was going, and not just have shot and killed him without knowing who he was," says De Menezes's mother. "They made so many mistakes that I don't know where to begin." Her bitterness is understandable.

Maria Otone de Menezes and her husband Matozinho are simple, dignified people who live on a small farmstead an hour's drive outside the village of Gonzaga where their son now lies buried. Spanning the dusty road at the entrance to the village is a sign that reads "Land of Jean Charles de Menezes. Victim of terrorism in London. Here we value life." For years the family have worked hard to survive. Their livelihood comes from Matozinho's two dozen cows and the family's ubiquitous chickens. The area offers little for the young. There's no work and no future here. "Jean couldn't earn a decent wage because people here are poor," Maria says. That's why he went to London. His father, Matozinho, says Jean had made them a promise. "I'll send you everything I earn from my job in London. And after I have been working there for a few years, I'll come back to Brazil and live here." De Menezes was never able to fulfil that promise.

The family are determined that those responsible should be brought to justice and pay the penalty for what they see as cold-blooded murder. The commissioner, Ian Blair, is top of the list. "He is the person who is most responsible for what has happened," says De Menezes's cousin Patricia, who lives in London. "It was a series of errors which began at the top and then ended up with an officer killing my cousin. I think that all of them, without exception, should be prosecuted. They judged my cousin, and sentenced him, all in the space of a moment."

Stockwell was a double tragedy - above all for the De Menezes family, but also for the Metropolitan Police, whose officers believed they were trying to protect the people of London. If the suspect had indeed been a suicide bomber, the officers who ran the operation and finally killed him would probably have been decorated. Instead they face the possibility of going to court.

· Peter Taylor's Panorama special, Stockwell: Countdown to a Killing, will be shown tonight on BBC1 at 9pm.