BBC Chairman Gavyn Davies on Wednesday resigned after Lord Hutton submitted his report into the death of British scientist and weapons expert Dr David Kelly.
He is the most high profile casualty of the report, which indicted the BBC for standing by reporter Andrew Gilligan's story that Prime Minister Tony Blair's government "sexed up" Iraq's weapons capabilities in order to justify the war against Saddam Hussein's regime.
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Dr Kelly committed suicide after he was identified as the source of the story.
Lord Hutton said in the report: "I consider that editorial system which the BBC permits was defective in that Gilligan was allowed to broadcast his report... without editors having seen a script of what he was going to say and without having considered whether it should be approved."
He said BBC governors should have properly investigated Downing Street complaints as they defended the corporation's independence. "The BBC management was at fault... in failing to investigate properly the government's complaint" that the report was false, he said.
He added that Dr Kelly committed suicide because he had been publicly disgraced.
Following Davies's resignation, BBC Chief Executive Greg Dyke accepted that "certain key allegations" reported by Gilligan were wrong and said the BBC apologised for them.
In his first reaction to the report, Dyke said, "However, we would point out again that at no stage in the last eight months have we accused the prime minister of lying and have said this publicly on several occasions."
He added, "Dr Kelly's death was a tragedy for his family and, again, we offer our sincere condolences to them.
"We note Lord Hutton's criticisms of the BBC. Many of these relate to mistakes which the BBC has already acknowledged in its submission to the inquiry and for which we have already expressed regret.
"Thanks to the process of Lord Hutton's inquiry, we now know more about the evolution of the September dossier.
"The dossier raised issues of great public interest. Dr Kelly was a credible source. Provided his allegations were reported accurately, the public in a modern democracy had a right to be made aware of them. The greater part of the BBC's coverage of the dossier fulfilled this purpose."
Meanwhile, Blair demanded everyone who accused him of deliberately falsifying intelligence in the Iraq war dossier to retract their statements.
He told the House of Commons that his government accepted the report.
He said Gilligan's charges could not have been more serious.
"If true it would have meant that I had misled this House. The allegation that I or anyone else lied to this House or deliberately misled the country by falsifying intelligence on WMD is itself the real lie. And I simply ask that those who made it and those who have repeated it over all these months now withdraw it, fully, openly and clearly," he said.
Conservative opposition leader Michael Howard said his party accepted the report's conclusions.
But he declared, "When all is said and done I suspect that what will remain in people's minds is the blinding light that this inquiry has shed on the innermost workings of the prime minister and his government."
Howard also called for independent regulation of the BBC, saying the BBC governors' board was not the right body to both run and regulate the corporation.