Britain has offered today to pay compensation for personal injuries and damage to buildings caused when its troops raided a prison in southern Iraq last month to free two British special forces soldiers.
"We regret the incidents that took place in Basra on September 19 th2005. We also regret the casualties on both sides and the material damage to public facilities," local British and Iraqi authorities said in a joint statement.
"The British Government is prepared to pay valid claims for compensation for casualties and material damage in the well-established manner," it said.
The statement was released by the Foreign Office in London.
The incident, in which the two soldiers who had been operating undercover in Basra were captured by Iraqi police after a firefight and then taken by militant militias, badly soured diplomatic relations between Britain and Iraq.
As negotiations for the release of the two men dragged on, British troops in the streets around the prison came under firebomb attack before their local commander finally ordered the assault on the jail and freed the two men.
The local authorities in Basra insisted that Britain apologise for the jail attack, pay compensation and hand the men back. But Britain insisted that the Iraqis had broken their own laws by not immediately handing the men over to British forces and said that they only attacked when it was clear that the lives of the two were in imminent danger.
Today's joint statement was seen as a face-saving formula for both sides. "Frank dialogue between British representatives and the representatives of the local Government elected by the people of Basra is key to co-operation in regard to the reconstruction of Basra and in making the necessary security arrangements for achieving the democratic process in Iraq," the statement said.
Since the incident, it has emerged that the undercover soldiers were monitoring infiltration into southern Iraq of militants crossing the border from Iran and believed to be training and equipping local insurgents.