London (CNN) -- In 2005, the best-selling weekly UK tabloid News of the World published a seemingly mundane story about Prince William's injuring his knee.
It was just another exclusive for a newspaper that had made its reputation on hard-hitting exclusives, often exposing the embarrassments of celebrities and politicians.
Britain's newspaper culture which developed around London's Fleet Street, nicknamed the "Street of Shame" by satirical magazine Private Eye, has long been based on cut-throat competition and dirty dealings -- anything goes, if you can land the big story.
But this scoop was different from the others. Royal officials realized that it could only have been sourced by the illegal interception of Prince William's mobile phone voicemail, and complained to the police.
This started a chain reaction of allegation and scandal that enveloped not just members of the royal family and celebrities but also murder victims and those injured in terrorist attacks.
It is linked to the office of UK Prime Minister David Cameron whose judgement has been called into question by opposition lawmakers, including Labour leader Ed Milliband for later employing the editor of the paper as his press spokesman. The growing scandal implicates London's police force and has now brought down one of the biggest assets of Rupert Murdoch's media empire.
News of the World, the world's top-selling English-language newspaper, is owned by News International, which also owns the Sun, the Times and the Sunday Times in Britain. Murdoch's News Corps media empire also encompasses Fox News, the Wall Street Journal, the New York Post and Harper Collins publishers.
The initial complaint led to the arrest of News of the World's royal editor Clive Goodman and private investigator Glenn Mulcaire. Both were convicted in 2007 of conspiracy to intercept phone messages and jailed.
The paper's editor Andy Coulson also resigned, saying he knew nothing about the hacking of phones but accepted "ultimate responsibility." But he continued to attract flak after his resignation, especially when he became Cameron's media spokesman.
A series of investigations by police and the country's newspaper watchdog followed the arrest of Goodman and Mulcaire, all of which concluded that phone hacking was not widespread at the Sunday tabloid, and there was no evidence executives knew about the practice.
But the story refused to die, thanks to the doggedness of the left-of-center newspaper The Guardian which published a series of stories about the scandal. Celebrities and public figures also came forward alleging their phones had been hacked; some launched legal actions against News of the World and the police for allegedly failing to investigate.
When asked for comment by CNN about the allegations, the Metropolitan Police said prosecutors are re-examining the evidence from the original phone hacking investigation, and therefore the police will not comment further.
In a New York Times article last year former News of the World journalist Sean Hoare alleged that phone hacking was common practice at the newspaper.
Police launched a new investigation this year into hacking by journalists in response to widespread complaints from politicians, celebrities and other high-profile figures who fear they have been targets. News of the World's parent company News International paid out compensation to various victims, including actress Sienna Miller and publicist Max Clifford, and issued a public apology in April.
News International said in its statement: "Following an extensive internal investigation and disclosures through civil legal cases, News International has decided to approach some civil litigants with an unreserved apology and an admission of liability in cases meeting specific criteria."
The company added that it has asked its lawyers to set up a compensation fund to deal with "justifiable" claims -- but would contest cases that it believed were without merit.
"That said, past behavior at the News of the World in relation to voicemail interception is a matter of genuine regret. It is now apparent that our previous inquiries failed to uncover important evidence and we acknowledge our actions then were not sufficiently robust."
In January, amid growing speculation he knew about the hacking, Coulson resigned as Cameron's official spokesman. Cameron said Coulson -- who continues to deny the claims -- was quitting because of the continuing pressures on him and his family. The former newspaper editor also believed that the focus surrounding the issue was "impeding his ability to do his job and was starting to prove a distraction for the government," Cameron added.
The story was only propelled onto the front pages in July when police revealed that News of the World possibly hacked into the voicemail of a murdered schoolgirl, Milly Dowler, and victims of the London bombings.
The allegation stunned media watchers. "Outside of the political elite in Britain, this story has had little traction until now," said Roy Greenslade, a former editor of the Daily Mirror and an assistant editor of the Sun, a sister paper of News of The World.
"The allegations about the hacking of Milly Dowler's phone have the potential to change that. This is a step change: before we had hacking of celebrities and politicians, but here we have the interference of a murder inquiry involving a 13-year-old girl."
The father of one victim of the London bombings of 2005, in which 52 people died, said police also told him he was a possible hacking target.
The allegations sparked outrage, with opposition lawmakers demanding -- and obtaining -- a promise of a public inquiry. They have also demanded the resignation of the paper's then-editor, Rebekah Brooks, who was promoted to chief executive of News International in 2009. Several advertisers including Ford Motor Company said they were reviewing their accounts with News of the World.
In a memo to News International staff, widely circulated in the UK media before the announcement that News of the World would close, Brooks said it was "inconceivable that I knew or worse, sanctioned these appalling allegations."
"It is almost too horrific to believe that a professional journalist or even a freelance inquiry agent working on behalf of a member of the News of the World staff could behave in this way.
If the allegations are proved to be true then I can promise the strongest possible action will be taken as this company will not tolerate such disgraceful behavior."
Former Deputy Prime Minister John Prescott told CNN the failure of police officers to investigate the scandal properly pointed to the fact "something is rotten in the state of England."
Prescott, whose affair with a secretary was splashed across the front pages in 2006, said officers initially dismissed his fears that his voicemail had been intercepted and investigated his complaint only when he took legal action. Eventually he said police told him his phone had been hacked into on 44 occasions.
"You've got a very close relationship between the press and the police. Then a close relationship between them and the prosecuting officers," Prescott said.
"And it's now very clear that not all the information was made available, criminal acts were ... being committed by the papers and nobody really acted effectively on it. They just tended to deny it, that it was only one paper, a rogue reporter. Totally untrue."
One lawyer who is acting for up to 40 alleged hacking victims said the scandal showed some journalists had completely lost their moral compass.
"Phone-hacking was just one of the unlawful ways in which there was intrusion by journalists into the private lives of individuals," said Mark Lewis. "This was not just about celebrities, they didn't care whose lives they ruined.
"Phone hacking was too easy. It encouraged lazy journalism and dishonest practices. Journalists seemed to have no morals," he added.
One disillusioned former reporter for various newspapers said pressure contributed to the culture that led to illegal activities.
"Using private investigators to get a story gave you a great leap over rivals, so it's no surprise that phone hacking has reached the endemic level it has," said Dan Waddell, who added that he never himself hacked a mobile phone.
"This is symptomatic of the pressure piled on journalists, especially on a tabloid, who must get the story at all costs. As a reporter you don't want to be the one who gets shouted at by your boss."