Updated at 2:57 p.m. ET
LONDON - 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 4 percent after the announcement, but rebounded as uncertainty about the company's immediate future was lifted and closed 2 percent higher.
Murdoch had hoped to gain control of the 61 percent 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.
But the deal unraveled with stunning speed after a rival newspaper reported that Murdoch's News of the World tabloid had hacked into the phone of teenage murder victim Milly Dowler in 2002 and may have impeded a police investigation into the 13-year-old's disappearance.
What had for several years been a trickle of allegations by people who claimed to have been hacked by the paper from celebrities like Sienna Miller and Jude Law to politicians including former Deputy Prime Minister John Prescott became a torrent. Potential victims swelled to include other child murder victims, 2005 London bombing victims and the families of dead British soldiers.
News Corp. responded by killing off the 168-year-old weekly newspaper, which published its final issue on Sunday. Murdoch flew to London in a desperate scramble to keep the BSkyB bid alive.
But still the allegations mounted. Former Prime Minister Gordon Brown claimed his bank details and the medical records of his son, who has cystic fibrosis, had been obtained by other Murdoch papers.
The Daily Mirror newspaper, a rival to Murdoch's The Sun tabloid, claimed that a reporter for a Murdoch paper may have sought the phone numbers of victims of the Sept. 11 attacks in the United States.
Politicians from all parties, who for more than three decades have sought the approval of the Murdoch press, finally abandoned him.
"The terrible revelations of the last week have shaken us all," Labour Party leader Ed Miliband said in parliament Wednesday. "The events of the last seven days have opened all our eyes and given us the chance to say: It doesn't have to be like this."
Wednesday's debate centered on a motion declaring that Murdoch's bid for BSkyB would not be in the national interest. All three main parties had owed to back the nonbinding motion.
The debate went ahead after Murdoch withdrew his bid, and the motion was approved without a formal vote, in a chorus of "ayes."
News Corp. lost several billion dollars in market value after the scandal broke last week, but its shares rallied after the company said Tuesday that it was buying back $5 billion of its own shares. Shares rose 71 cents, or 4.6 percent, to $16.06 in afternoon trading in New York.
For Murdoch, it was a dramatic reversal. For three decades, the Murdoch press has had near-mythic powers among British politicians to destroy careers and determine the result of elections. After the Conservatives triumphed in the 1992 election, the Sun blared in a front-page headline "It's the Sun wot won it" and few doubted that it was true.
Steven Barnett, communications professor at the University of Westminster, said Murdoch's retreat signaled a new era in British political life.
"This means the British Parliament has discovered its spine," he said. "After 30 years of successive governments caving in to powerful media corporations, finally Parliament has realized it has to take a stand."
It was a bitter irony for Murdoch that it was the News of the World, his first British acquisition in 1969, which sabotaged his ambitions to control the nation's most profitable broadcaster.
Its ramifications for News Corp. and its executives particularly Murdoch's son James, head of News Corp.'s European and Asian operations, and the company's British chief Rebekah Brooks are still playing out.