Lady Justice Hallett refuses to exclude family members, but says evidence can be edited to remove confidential information

The coroner at the inquests into the 52 people killed on 7 July 2005 has rejected attempts by MI5 to exclude bereaved family members from hearings in which she will consider sensitive intelligence material.

Lady Justice Hallett today ruled that she does not have the power to consider in closed hearings secret intelligence documents which lawyers for the security services had argued would damage national security if made public.

She said the evidence could be edited to remove names of sources and other confidential information.

Counterterrorism sources indicated that an appeal was likely, but that the final decision would rest with the home secretary. A Home Office spokesman said it would consider the ruling carefully.

Graham Foulkes, whose 22-year-old son David was killed in the Edgware Road bombing, said he was "delighted" by the decision, describing it as a "commonsense" ruling.

The bereaved relatives want to ask security service officials why they did not follow up bombers Mohammad Sidique Khan and Shehzad Tanweer, after surveillance officers watched them meeting known terror suspects 17 months before the bombings.

MI5 argues this is both unnecessary and impossible because doing so would require the disclosure of top secret intelligence files.

Khan was the ringleader of the plot in which he and Tanweer and fellow bombers Hasib Hussain and Jermaine Lindsay detonated suicide bombs on three underground trains and a bus, packed with commuters.

Lady Justice Hallett ruled in May that the hearings should examine alleged failings by police and MI5. The issue of the preventability of the attacks will be the last to be considered by the coroner, who is sitting without a jury, early next year.

In separate evidence, a Metropolitan police inspector admitted that he had found the scene at Aldgate "chaotic" when he arrived with his team on the scene at 9.26am, 35 minutes after the bomb, prepared to assist British Transport police (BTP) and City of London police (COLP) who had authority over the station.

Ian Wheeler said that he and his colleagues had to abandon their three minibuses and run to the station when they were unable to get close to it.

He had expected to be briefed by the person in charge; he had found himself having to draw up his own strategy and hope it didn't contradict that of other agencies, he told the coroner.

In a document compiled on the evening of the bombing, shown to the jury, he noted that when he arrived "the outer cordon … did not appear to have been evacuated. There appeared [to be] a lack of COLP resources available even up to two hours after the incident. The mid term (1-3 hours) could have had a more effective command structure."

The inquest also heard that a wallet belonging to Tanweer had been recovered from the scene of the blast between Aldgate and Liverpool Street.

DC Richard Hall, a Metropolitan police forensic scene examiner, said he had recovered from the wallet membership cards for the Excelsior and Northern Snooker Centre clubs in Leeds and Optimum Fitness in Dewsbury, two bank cards in Khan's name and three business cards, including one for Greenthumbs Hydroponics in Wakefield.

The bombers are believed to have bought liquid oxygen from a hydroponics supplier.

There was also a fragment of a receipt for B&Q, where the plotters are known to have bought bomb components, and fragments of a £10 and £5 note.

Later Alistair Lawson, a BTP officer who had assumed "silver" command at Liverpool Street after the bombing, directly disputed the evidence given previously by the London Underground silver commander at the station, that the officer had stopped LU staff from entering the tunnel to see if they could help.

Asked by Hugo Keith QC, counsel to the inquests, if he recalled stopping duty station manager Darren Glazer from putting together a list of volunteers to enter the tunnel, Lawson said: "I have no recollection of that whatsoever."

Glazer told the inquests on October 26 that Lawson had intervened because of a fear of secondary devices. "That is not the case," said Lawson.

In separate evidence, a forensic scene examiner for the Metropolitan police revealed that it was when his team found a piece of backbone in the ruined train carriage two days after the explosion that it became evident that the device had been caused by a suicide bomber.

Andrew Meneely told the court "a significant piece of bone" had been found on a bench seat in the carriage. He knew it must belong to a person other than the victims who had already been identified, he said, because: "All of the bodies I had seen so far had no real upper body trauma to that degree."

The inquests continue.