Rupert Murdoch's dream of controlling a British broadcasting behemoth evaporated Wednesday as he withdrew his bid for BSkyB — the latest, biggest casualty of what Prime Minister David Cameron called the hacking "firestorm" sweeping through British politics, media and police.

Cameron appointed a senior judge to lead an inquiry into the phone hacking and police bribery scandal engulfing Murdoch's British newspapers, and promised it would investigate whether Murdoch's reporters also sought the phone numbers of 9/11 victims in their quest for sensational scoops.

"There is a firestorm, if you like, that is engulfing parts of the media, parts of the police, and indeed our political system's ability to respond," Cameron said Wednesday in the House of Commons.

"What we must do in the coming days and weeks is think above all of the victims ... to make doubly sure that we get to the bottom of this and that we prosecute those who are responsible," he said.

As lawmakers from all the country's main parties united to demand that Murdoch's News Corp. withdraw its bid for British Sky Broadcasting, the media magnate bowed to the inevitable, accepting that he could not win government approval for the multibillion dollar takeover.

"It has become clear that it is too difficult to progress in this climate," News Corp. deputy chairman and president Chase Carey said in a brief statement to the London Stock Exchange.

Shares in BSkyB fell four per cent after the announcement, but rebounded as uncertainty about the company's immediate future was lifted and closed two per cent higher.

Murdoch had hoped to gain control of the 61 per cent of BSkyB shares that he doesn't already own. The takeover — potentially his biggest, most lucrative acquisition — appeared certain to succeed just over a week ago, despite concerns about the size of Murdoch's hefty share of the British media market.

The news about the bid withdrawal comes as British lawmakers were poised to demand that Murdoch give up his goal of taking over the lucrative U.K. broadcaster.

Police have arrested eight people so far in their investigation, including Cameron's former communications director Andy Coulson, a former editor of News of the World. No one has been charged.

Cameron appointed Lord Justice Brian Leveson to lead the inquiry, which will be able to compel witnesses — including government figures — to give evidence under oath.

Inquiry to last 12 months

Leveson will first investigate culture, practices and ethics of the press, its relationship with police and the failure of the current system of self-regulation, which is expected to last up to 12 months. Only then will the inquiry focus shift to what went wrong at the News of the World tabloid and other papers, Cameron said.

In an about-face, Cameron put his party's weight behind an opposition Labour Party motion up for a vote Wednesday that declares that Murdoch's News Corp.'s bid for full control of British Sky Broadcasting would not be in the national interest.

The motion doesn't carry legal force, but with the three main parties in support, it looms as a powerful expression of the tide running against Murdoch's newspapers.

Cameron's office welcomed the news that News Corp. media empire has dropped its bid to takeover BSkyB, saying that Murdoch's company should focus on "clearing up the mess and getting its own house in order."

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Rupert Murdoch's hopes to gain control of the 61 per cent of BSkyB shares have been put on hold. (Luke MacGregor/Reuters)

Murdoch's hope to gain control of the 61 per cent of BSkyB shares that his News Corp. doesn't yet own had already been delayed for several months while the British government's Competition Commission reviews monopoly concerns.

"[Withdrawing the bid] is not what he wanted, but I think he realized he had to and that the sooner he did it, the sooner you go forward," Lawrence Haverty, a portfolio manager at Gamco Investors Inc. whose firm owns millions of shares in News Corp., told Reuters news agency.

"I've known [Murdoch] for a long time and don't think he directed wrong to be done, but he did put the environment in place allowing it to happen," he said.

When asked whether he thought Murdoch did the right thing in withdrawing the bid for BSkyB, Haverty told Reuters he did.

"That's a big positive. We as investors didn't want another six to eight months of review of this thing [the BSkyB deal]."

The uproar also claimed another top executive his job. News International, Murdoch's British unit, said its legal manager, Tom Crone, has left the company, but spokeswoman Daisy Dunlop declined to say if Crone had resigned or been told to leave.

Sun denies ex-PM's claims

But a defiant mood was evident at one News International paper, The Sun tabloid, which slapped the headline "Brown Wrong" across its front page in response to claims by former prime minister Gordon Brown that the paper had obtained his confidential information.

Outrage has grown and Murdoch's News Corp.'s share price has fallen since a report last week that News of the World hacked the phone of teenage murder victim Milly Dowler in 2002, followed by claims of intrusion into private records by The Sun and The Sunday Times.

Murdoch has already shut down the 168-year-old News of the World and has come to London to direct the company's efforts to get on top of its problems.

A report Wednesday in the Wall Street Journal, which is part of News Corp., said that Murdoch has met with advisers over recent weeks to discuss possible options including the sale of the remaining British newspapers — The Sun, The Times and The Sunday Times.

The Journal, citing unidentified people familiar with the situation, said there didn't appear to be any buyers given the poor economics of the newspaper division.

Brown accused Murdoch's papers, including The Sun and The Sunday Times, of obtaining his confidential bank accounts, tax records and even health information about his son, Fraser, who suffers from cystic fibrosis, using fraudulent, criminal means.

But, the newspaper insisted it learned of the boy's ailment from the father of another child with the same condition, and that it contacted the Browns, who consented to the story.

"We are not aware of Mr. Brown, nor any of his colleagues to whom we spoke, making any complaint about it at the time," The Sun said.

Its coverage included picture of Brown and Murdoch standing together, both grinning.

Murdoch's News International responded to his accusations by asking Brown for any information that would help to investigate them.

London Mayor Boris Johnson said Wednesday that he had been informed that his telephone had been hacked, but he decided not to take legal action.

"Quite frankly, why on earth should I go through some court case in which it would have inevitably involved going over all the pathetic so-called revelations that the News of the World had dug up?" Johnson said.

U.S. senator urges probe into papers

In Washington, Senator Jay Rockefeller, a Democrat from West Virginia, urged an investigation into whether Murdoch's U.K. newspapers had violated U.S. law.

If there was any hacking of phones belonging to 9/11 victims or other Americans, "the consequences will be severe," said Rockefeller, chairman of the Senate Committee on Commerce, Science and Transportation.

The suggestion that 9/11 victims may have been targeted surfaced Monday in the Mirror, a British competitor of The Sun. It quoted an anonymous source as saying an unidentified American investigator had rejected approaches from unidentified journalists who showed a particular interest in British victims.

Cameron promised that the claim would be investigated.

U.K. police are pursuing two investigations of News International, one on phone hacking and the other on allegations that the News of the World bribed police officers for information.

Hugh Orde, president of the Association of Chief Police Officers, urged News International to come clean about any such payments.

"Let's not play around with legal games here: If they have names, dates, times, places, payments to officers, we would like to see them so that we can lock these officers up and throw away the key," Orde told the British Broadcasting radio.

Police officials have indicated the bribery investigations involve about half a dozen officers.

The only media holding Murdoch has in Canada is AskMen, a lifestyles website aimed at men, based in Montreal.