The detective who led the Omagh bomb investigation has told an inquiry that the man who transported the bomb was an agent for both the UK security services and the gardaí (Irish police).

Retired Ch Supt Norman Baxter gave evidence to the Omagh Bombing Inquiry sitting in Belfast on Friday.

He said: "As I went through the investigation it became very apparent that an individual was a Garda agent. It became apparent that in one operation there was a high potential that he was jointly handled by the security services."

Baxter said he also believed that intelligence services were aware of the bombers' activity before they carried out the Omagh bombing.

"I formed the view that Special Branch, the security service and GCHQ (Government Communications Headquarters) knew prior to 15 August 1998 the identities of some if not all of the suspects involved in the Omagh bomb," he said.

The amount of information they knew I can't assess but yes, they knew."

Baxter told the hearing that there was "significant effort by the Garda to prevent their activities being uncovered".

"The Irish Government and particularly the Ministry of Justice, have failed to investigate the Garda operations in the period leading up to Omagh, he added saying he was "saddened" by the "absolute failure" of the police investigation.

"It is very sad. I am very proud of my time in the police but this was a failure at leadership, a failure at government level. It just should not have happened."

"The Republic and United Kingdom, all the apparatus they had, all the technology, their source network, these people should have been stopped and there has to be a reason why that didn't happen."

He also alleged that the Gardaí allowed bombs to be taken across the border into Northern Ireland.

"Some devices were being allowed to travel into Northern Ireland, and then there were other devices which had come into Northern Ireland which the source provided to dissidents and those devices had exploded," he said.

"Did Garda officers commit a criminal offence which could be prosecuted in the United Kingdom, that is carrying out an act of terrorism by colluding with dissident republicans, to facilitate the delivery of bombs?

"The government of Ireland had information that a bombing was imminent."

He also told the inquiry about a test run of the bomb route was taken by two "known dissidents" the day before the bombing.

Senior counsel to the inquiry Paul Greaney KC, who was reading from Baxter's report, outlined how the detective noted a vehicle bearing the registration number of Seamus McKenna's car was recorded entering the Thiepval military base in Lisburn in September 1997.

It then re-emerged on the system on 12 August 1998 and was recorded crossing the border at Aughnacloy on 14 August, the day before the bombing.

Another vehicle also travelled the route, it was linked to Liam Campbell, he continued.

When asked about the report Baxter added: "It might have been a test run in terms of timing how long it took from the origins of the bomb to the target site."

Baxter said he concluded that the Omagh bombers had "free reign" from the middle of 1997 and the authorities allowed that to continue.

"There were a number of opportunities in the past when this group could have been disrupted," he said.

He also told the inquiry that he felt guilt about having knowledge of the bombing that he was unable to share with the victims and families.

"I sat for many meetings with various victims groups and I listened to what they were saying about Garda collusion. I listened to what they were saying about Garda knowledge, but Irish Government cover ups, and everything in the north and I knew they were telling the truth but legally I couldn't tell them, and I have to pay great respect to the effort that has brought the victims to this place where there is a legal forum where the truth can be told without fear of prosecution.

"It's such a tragedy that we are here when this could have been resolved".

Three days after the attack, the Real IRA released a statement claiming responsibility for the explosion.

It apologised to "civilian" victims and said its targets had been commercial.

No-one has been convicted of carrying out the murders by a criminal court.

In 2009, Michael McKevitt, Liam Campbell, Colm Murphy and Seamus Daly were all ordered to pay a total of £1.6m in damages to the relatives, but appeals against the ruling delayed the compensation process.