Published Monday, 23 May 2011
Unveiling the long-awaited report into the killing in a statement to the Commons, Mr Paterson said there was no evidence that the state "conspired in or planned" her murder.
But he said "omissions" by state agencies made the high-profile lawyer "more at risk and more vulnerable".
The Northern Ireland Office, the Royal Ulster Constabulary, the Army and the Security Service "failed to take reasonable and proportionate steps" to safeguard her life, he said.
But the inquiry, which investigated allegations of police collusion, found "no evidence of any act by or within any of the state agencies... which directly facilitated" the killing.
I am profoundly sorry that omissions by the state rendered Rosemary Nelson more at risk and more vulnerable.
Secretary of State Owen Paterson
Mrs Nelson, 40, was killed when a bomb planted by the loyalist Red Hand Defenders detonated under her car as she left her home in Lurgan on 15 March 1999.
The mother-of-three represented a number of high-profile republicans, including Colin Duffy, who is currently in jail charged with the dissident murder of two soldiers outside Massereene army base in March 2009.
Mrs Nelson also took on the prominent role of legal adviser to a Catholic residents' group that opposed Orange Order marches in the infamous Drumcree parade stand-off.
Human rights groups raised concerns about the solicitor's safety following claims of intimidation by security forces and loyalist paramilitaries.
The damning report, which cost £46.5m and took six years to complete, is highly critical of the RUC.
It says: "We cannot exclude the possibility of a rogue member or members of the RUC or the Army in some way assisting the murderers to target Rosemary Nelson."
"If Rosemary Nelson had been given advice about her safety and offered security measures, then assuming that she had accepted such advice and security measures, the risk to her life and her vulnerability would have been reduced."
According to the report, "some members of the RUC publicly abused and assaulted Rosemary Nelson on the Garvaghy Road in Portadown in 1997, having the effect of legitimising her as a trophy target."
The report also states: "We believe that there was some leakage of intelligence which we believe found its way outside the RUC" and that "the leakage increased the danger to Rosemary Nelson's life."
The report found that the RUC failed "to warn Rosemary Nelson of her vulnerability and offer her security advice."
The report also concludes "the NIO did not press the RUC hard enough for full replies to their questions concerning Rosemary Nelson's personal security" and "the NIO should have proactively questioned the RUC as to what factors were considered in producing a threat assessment."
Mr Paterson said that it was "deeply regrettable" that despite a very thorough police investigation, no-one has ever been charged with Mrs Nelson's murder.