A controversial decision by Britain’s anti-fraud agency to halt an inquiry into whether one of the world’s largest arms dealers offered bribes in exchange for lucrative contracts in Saudi Arabia was upheld by the country’s highest court Wednesday.

The House of Lords committee decided unanimously that the Serious Fraud Office had acted lawfully when it decided to end the inquiry into whether BAE Systems PLC offered the Saudis bribes in a major contract for fighter jets and arms _ a victory for the government and the Saudis, who threatened to withhold crucial cooperation on anti-terrorism intelligence and efforts.

BAE, however, is still under investigation in the United States and Switzerland, while the Serious Fraud Office continues to look into possible BAE bribes to Tanzania, Romania, Chile and the Czech Republic in other arms contracts.

The anti-fraud agency halted the bribery investigation in 2006, citing national security concerns. Critics felt the agency was giving in to financial and political pressure from the Saudis, who threatened to cancel some arms deals and withdraw cooperation on security issues.

The House of Lords decision Wednesday overturned an earlier victory for the Campaign Against Arms Trade and the social lobby group Corner House in the High Court. In that earlier ruling, High Court judges had sharply criticized the anti-fraud agency, the British government and the Saudi royal family, saying the agency’s decision represented an “abject surrender” to pressure from a foreign government.

BAE said in a statement Wednesday the case involved the agency’s decision and “BAE Systems played no part in that decision.”

The Saudi Embassy in London declined to comment. Telephones at the Saudi Foreign Ministry rang but were not answered.

If the anti-fraud agency had lost its appeal in the House of Lords, it would have had to consider reopening the inquiry into allegations that BAE ran a 60 million-pound “slush fund” to woo Saudi officials as part of the 42 billion pound al-Yamamah arms deal that began in the 1980s.

Lord Bingham, who chaired the Law Lords committee, said the Serious Fraud Office believed that believed Saudi cooperation on intelligence issues was crucial for Britain to prevent terror attacks such as the London bombings.

Bingham added the issue was not whether the agency’s former director Robert Wardle was “right or wrong,” but whether he was legally entitled to make the decision, which was publicly supported by former Prime Minister Tony Blair.

“In the opinion of the House the Director’s decision was one he was lawfully entitled to make,” Bingham said in a written judgment. “It may indeed be doubted whether a responsible decision maker could, on the facts before the director, have decided otherwise.”

Baroness Hale said it was “extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort.”

However, she added it was clear that Wardle only gave way when he was convinced that the threat of withdrawal of Saudi security cooperation was real.

The Saudis had also threatened to cancel a 10 billion-pound contract to buy 72 Eurofighter jets from BAE _ the deal was signed after the inquiry was dropped _ but Blair and the fraud office denied basing the decision on commercial grounds.

“The great British public may still believe that it was the risk to commercial British interests which caused him to give way, but the evidence is quite clear that this was not so,” Hale said.

Earlier this year, High Court judges had taken a very different view of the situation. Lord Justice Moses and Justice Sullivan had called the Saudi threats a “successful attempt by a foreign government to pervert the course of justice in the United Kingdom.”

Corner House spokesman Nicholas Hildyard said Wednesday’s ruling revealed that invoking national security could halt any inquiry.

“The unscrupulous who have friends in high places overseas willing to make such threats now have a ‘Get Out of Jail Free’ card and there is nothing the public can do to hold the government to account if it abuses its national security powers,” Hildyard said.

“Parliament needs urgently to plug this gaping hole in the law and in the constitutional checks and balances dealing with national security,” he added.

Britain’s relationship with Saudi Arabia has long been a rocky one.

A state visit by Saudi Arabia’s King Abdullah last October was overshadowed by accusations from the king that Britain had failed to act on information from the Saudis that could have averted the 2005 London suicide bombings that killed 52 commuters during rush-hour.