The bodies lying at the British embassy in Baghdad yesterday were the grimmest reminders of a dark tale with accusations of betrayal and intrigue. Two years of frantic searches, night raids and secret negotiations amid the murderous violence had failed to save at least two of the five men who disappeared on 29 May 2007.

They were taken from an Iraqi government building in the centre of the Iraqi capital by men in police uniform, past army checkpoints and a second security screen into Sadr City, the base of Shia militias, all signs, say the men's families, of official collusion.

As the months dragged on without any sign of their release, the father of Peter Moore, viewed as the main hostage, told The Independent that he felt that his son and the others had been "abandoned" by the British Government. The Foreign Office, said Graeme Moore, had not bothered to keep him informed of what was going on. At the same time, Iraq's national security adviser, Mowafaq al-Rubaie, accused the British Government of not doing enough to secure the release of its own citizens.

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Was this true? In the aftermath of the kidnappings, an SAS unit based in Baghdad, part of a coalition special forces group called Task Force Black, mounted several raids with Iraqi and US forces in an attempt to free the hostages. But General David Petraeus, the American commander of allied forces in Iraq at the time, acknowledged: "There have been several operations to try to rescue them; we just have not had the right intelligence."

On at least two occasions, one in Sadr City and the other in the Shia district of Khadamiyah, British and US troops were said to have made raids just hours after the hostages had been moved on. There were questions on whether details of the missions were being leaked by Iraqi security forces.

At the same time, British officials, based at a building called the "Station House" in Baghdad, as well as Basra in the British-controlled south, began indirect talks with the kidnap gang. The efforts to find a solution took on added urgency with reports that at first one, and then another, of the hostages had died, allegedly by their own hands. But no evidence was provided of this, and the official position remained that the men were alive, and every effort was being made to get them out.

It soon became clear that a deal would have to be done with the captors. But who they were, and what they wanted, became a major stumbling block. The Shia group involved, Asaib Ahl al-Haq, was trained and funded by the Iranian regime and had been responsible for attacks on US and British forces, General Petraeus and other senior American commanders believed.

The group had asked that three "high value" prisoners – their leader Qais al-Khazali, his brother, Laith al-Khazali and a Lebanese Hizbullah commander, Ali Moussa Daqduq – should be turned over to Iraqi custody in return for freeing the captives. The Americans were apparently considering this (after a British request) until Iraqi officials said they were not prepared to prosecute the men.

Mohammad al-Sa'ady, an adviser to Prime Minister Nouri al-Maliki said: "We pointed out that Qais al-Khazali has a problem with the Americans. He doesn't have a problem with us. He is not wanted for crimes against Iraqis. In principle, we are ready to forgive anyone who lays down their arms."

Senior US commanders were said to have forcefully argued against letting go of Qais al-Khazali, who they allege was responsible for planning the murder of five American soldiers in Karbala in January 2007. General Kevin J Bergner of the US Army claimed at the time of his arrest a few months later that documentation showed the Iranian al-Quds force had taken part in organising the attack and that, under interrogation, al-Khazali had admitted Iranian involvement.

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Last week, Laith al-Khazali was freed, leading to hopes that reciprocation would begin with the British hostages. But Asaib Ahl al-Haq was said to have been adamant that Qais al-Khazali must also be released before any exchanges.

Sami al-Askari, one of the senior negotiators with the militias for the Iraqi government, said that he believed this was going to happen. The formula used was that since Asaib Ahl al-Haq had indicated wishing to join the political process, both sides would have to make compromises. "We told them that they cannot do so while holding hostages," said Mr al-Askari. "We also told the American side that the group cannot join the political process and release their hostages while their leaders were behind bars and imprisoned."

For the British Government, negotiations were now effectively the only hope of bringing the hostages home. The SAS troops in Iraq were being transferred to a new front in the "war on terror": Afghanistan. US and Iraqi forces would continue to search for the men, but there was a realisation in London that it would not be the first task in their list of priorities.

There seems to have been no realisation that two of the hostages had been dead for weeks, one possibly for months. What has now happened does not mean that the three remaining hostages will be kept captive. But serious questions must be asked about the tactics employed by the British Government and also the role of GardaWorld, the company which employed the four bodyguards for Mr Moore.

Court papers lodged in the US claimed that GardaWorld had continued to charge USaid, which paid for Mr Moore's protection, $1,000 a day for the "services" of the four bodyguards while they were in captivity. The company, it was alleged by a former employee, did not have a kidnap and insurance policy and this was revealed to the families of the hostages. The company also employed a public relations company to manage the bad news. Friends of Mr Moore who organised events to keep his memory alive say they had complaints from the PR firm.

And GardaWorld is said to have played a part in shaping the British Government's policy of sparse publicity over the matter, a policy very different from the ones adopted over other abductions, such as those of Terry Waite and John McCarthy in Beirut, Norman Kember in Baghdad and Alan Johnston in Gaza. As a result, say critics such as Graeme Moore, the hostages were more or less forgotten until the shocking reminder of the news from Baghdad.

Asked out the insurance and $1,000-a-day charge, a spokesman for GardaWorld said: "We haven't disclosed any of the details around this."

A crisis management firm, Millbrook Partnership, was employed in response to hostage-taking. Its responsibilities include dealing with communications.

The GardaWorld spokesman said that rather than influence the Foreign Office, "I think the British Government was of a similar mindset".