The inquiry cleared Prime Minister Tony Blair's government of any responsibility in the suicide death of Iraq weapons expert David Kelly.
The BBC's director-general, Greg Dyke, announced Thursday he had resigned as a result of the highly critical report from an official British inquiry, led by Lord Brian Hutton.
Dyke said his position had been compromised by the criticisms of BBC management in the Hutton report.
Dyke's resignation follows that of BBC Chairman Gavyn Davies, who had informed the BBC's board of governors of his decision during a meeting Wednesday, shortly after Hutton released the long-awaited report.
The report tracked the sequence of events, beginning with the Blair government's compilation of the September 2002 Iraq dossier, the BBC's allegations that the government deliberately exaggerated its intelligence to advance the cause for war, and culminating with the suicide death of Kelly.
Hutton on Wednesday described as "unfounded" a BBC radio report that the government deliberately exaggerated, or "sexed up," the threat of Iraqi chemical weapons before the U.S.-led invasion in March last year. He also called the BBC report a slur on the government's integrity.
Davies, upon announcing his resignation, said the people at the top of organizations should accept responsibility for their actions.
"I have been brought up to believe that you cannot choose your own referee, and that the referee's decision is final," he said.
Hutton, in summarizing the findings of his report, lambasted BBC management for allowing Andrew Gilligan, its correspondent on the Today radio program, to broadcast "unfounded," "grave" and "false allegations of fact impugning the integrity of others."
Kelly killed himself in July after he was identified as the source for Gilligan's Today program report.
Gilligan on May 29 reported on the BBC's Today radio program that an anonymous senior official in charge of writing the prewar Iraq dossier alleged that a senior Blair aide inserted a dubious claim that Iraq could deploy chemical or biological weapons within 45 minutes -- against the wishes of Britain's intelligence agencies.
Gilligan later told the judicial inquiry that he made a "slip of the tongue" when he stated during a live broadcast that the government "probably knew (the 45-minute deployment claim) was wrong." And he apologized for misidentifying Kelly as his confidential "intelligence source."
In his report, Hutton criticized the BBC's handling of Gilligan's broadcast in light of the gravity of its claims.
"The allegations that Gilligan was intending to broadcast in respect of the government and the preparation of the dossier were very grave allegations in relation to a subject of great importance," Hutton said.
"And I consider that the editorial system which the BBC permitted 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 having considered whether it should be approved."
Hutton said that the BBC's board of governors, rather than relying on the assurances of BBC management and Gilligan, should have made more detailed investigations into the extent to which Gilligan's notes supported the Today report.
If the governors had asked for Gilligan's notes "they would probably have discovered that the notes did not support the allegations that the government knew that the 45-minute claim was probably wrong."
Furthermore, the governors could have then questioned whether "it was right for the BBC to maintain that it was in the public interest to broadcast the very grave allegations," Hutton concluded.
Hutton also took the BBC governors and management to task for jumping to Gilligan's defense without giving proper consideration to the government's complaints about the story or whether Gilligan's allegations were factually accurate. Though Hutton faulted Blair's former communications chief, Alastair Campbell, for "raising the temperature" of the government's dispute with the BBC, he emphasized that the BBC governors should have recognized that they could investigate Campbell's complaints while still protecting the BBC's independence.
"The governors should have realized more fully than they did that their duty to protect the independence of the BBC was not incompatible with giving proper consideration to whether there was validity in the government's complaints," the retired judge said.
In contrast, the Hutton report largely exonerated the Blair government in the events surrounding Kelly's suicide.
Hutton said there was no "dishonorable, underhand or duplicitous strategy" by the government to leak Kelly's name to help its battle with the BBC.
However, Hutton did conclude the Ministry of Defense was "at fault and to be criticized" for failing to tell Kelly that his identity as the suspected source would be confirmed to journalists who suggested it. There was no mention of which Ministry of Defense officials may have leaked Kelly's name to journalists.
Blair said the report showed "the allegation that I or anybody else lied to the House or deliberately misled the country by falsifying intelligence of WMD (weapons of mass destruction) is itself the real lie."
"I simply ask that those that have made it and repeated it over all these months now withdraw it fully, openly and clearly," he said.
"What has sustained and fueled that [media] interest has been, to put it bluntly, a claim of lying, of deceit, of duplicity on my part personally and that of the government," Blair said, speaking before applauding supporters in the House of Commons.
On Thursday, the BBC's acting chairman, Richard Ryder, apologized "unreservedly" for the network's mistakes, and "to the individuals whose reputations were affected by (those errors)."
Ryder also said the BBC would implement major changes to amend the "serious defects" as highlighted by the Hutton report.
"The BBC must now move forward in the wake of Lord Hutton's report, which highlighted serious defects in the corporation's processes and procedures," Ryder said in a statement.
Hutton's 328-report is based on evidence from 74 witnesses over a six-week inquiry last summer.