Police had staked out an address belonging to two of the failed bombers at dawn on July 22, 2005. It was less than 24 hours after the attackers' devices failed to ignite on three subway cars and a double-decker bus. Police feared they were set on trying to strike again.
The manhunt unfolded with the British capital already on edge after four suicide bombers killed 52 commuters two weeks earlier.
The officers watching the building trailed Brazilian electrician Jean Charles de Menezes, 27, out of the apartments, suspecting he was one of the bombers. They followed him onto two buses, into a subway station and finally into a train. There, officers, believing he was a bomber, shot him seven times at close range in front of morning commuters.
On Thursday, a jury found police guilty of breaking health and safety laws. Judge Richard Henriques ordered the Metropolitan Police to pay a total of $1.16 million for breakdowns in the operation.
"One person died and many others were placed in potential danger," Henriques said after the verdict.
The judge acknowledged the manhunt had been "a unique and difficult operation."
"This was very much an isolated breach brought about by quite extraordinary circumstances," he said.
The force had denied the charge, saying the killing was an error, not a crime. Outside London's Central Criminal Court, police chief Ian Blair expressed "my deep regret" over de Menezes' death.
"No police officer set out on that day to shoot an innocent man," he said. "I am certain that this death was the culmination of actions by many hands, all of whom were doing their best to handle a terrible threat facing London on that day — a race against time to find the failed suicide bombers of the day before."
Blair said he had no intention of resigning after the verdict. Prime Minister Gordon Brown said he had "full confidence" in the police chief, despite opposition calls for Blair to step down.
Blair did not rule out an appeal.
The Brazilian Foreign Ministry issued a statement saying the government doesn't consider that the decision closes the case.
"Although without specifying the individuals responsible for the tragedy, the decision recognizes the responsibility of the Metropolitan Police in the case and opens the way for new initiatives in favor of the family of that innocent Brazilian citizen," the statement said.
No individual officers were charged over de Menezes' death. The foreman of the jury told the court that blame should not rest with Deputy Assistant Commissioner Cressida Dick, the officer in charge of the operation.
Prosecutors claimed "fundamental failures" at all levels led to the death of de Menezes.
Police thought the Brazilian might have been Hussain Osman, who dropped his gym membership card at the scene of one of the failed attacks. An officer who was meant to identify him as he came out was away "relieving himself," prosecutor Clare Montgomery told the court.
The surveillance officers asked the Scotland Yard control room several times if they should arrest him, but were told to wait for a firearms team to arrive, Montgomery said.
She described the chaos at police headquarters, claiming an officer responsible for listening to messages could not hear what was being said because colleagues not involved in the case crammed into the room to listen to events unfold.
Despite officers' doubts about his identity, Dick testified she was told five times that the man police were following was Osman.
An officer called out on the radio that the man being pursued was "our man" and was acting "nervous and twitchy," a firearms officer testified.
The marksmen could be seen running down the subway station's escalator in security video footage shown to jurors.
A surveillance officer, identified as "Ivor," described following de Menezes into the subway car, grabbing him and pinning him to his seat when he realized firearms officers were there. He shouted: "Here he is."
The armed officers shot de Menezes five times in the head, once in the neck and once in the shoulder. The jury was shown photos of de Menezes lying dead on the car's floor.
Police lawyer Ronald Thwaites told the jury that de Menezes was shot because he had behaved suspiciously and "because when he was challenged by police he did not comply with them but reacted precisely as they had been briefed a suicide bomber might react at the point of detonating his bomb."
(This version CORRECTS AMs. SUBS 5th graf, `On Thursday ...' to correct fine to $1.16 million sted $2.1 milllion)