Two people questioned about the 1974 murder of Patsy Kelly were not prosecuted despite admitting to suspected paramilitary offences.
The Public Prosecution Service said in both cases "there was insufficient evidence to provide a reasonable prospect of conviction" and therefore the test for prosecution was not met.
Details of the arrest of the two suspects are contained in a damning report into the murder published by the Police Ombudsman last Wednesday.
A nationalist member of Omagh District Council, Mr Kelly is thought to have been killed as he returned home from work at a bar in Trillick, Co Tyrone, in July 1974.
His remains were weighed down before being dumped in Lough Eyes in Co Fermanagh.
They were recovered three weeks later when they floated to the surface.
In a hard-hitting report, Marie Anderson concluded that the family of Patsy Kelly “were failed” by police and found “collusive behaviour” among some officers.
She added there were a series of "significant" investigative failings in the case.
The Kelly family, and many in the local community, suspect the involvement of UDR members in the murder.
While no-one has been convicted, several former members of the regiment were arrested and questioned.
Ms Anderson revealed that RUC Special Branch and a senior officer in the area were aware of “significant intelligence” that a UVF unit was active in Fermanagh at the time of Mr Kelly’s murder.
A number of this unit’s members were “either directly linked to Mr Kelly’s murder and other terrorist attacks”.
The ombudsman also revealed that a number of security force members, including police officers, “were also linked to this unit and its activities”.
In her report Ms Anderson said that during a reinvestigation of the case in 2005 the PSNI arrested several people.
She confirmed that one suspect, known as Person 3, denied being involved in Mr Kelly’s murder and was subsequently released without charge.
However, the suspect did admit to his role in a bomb attack in Co Fermanagh in 1973.
Ms Anderson said police forwarded a file to the Director of Public Prosecutions (DPP).
Another suspect, Person 2, also denied being involved in the murder but admitted to moving UDA/UFF weapons from Co Fermanagh to Belfast in the early 1970s.
Again, a file was forwarded to the DPP.
A spokeswoman for the PPS said that “following consideration of all the evidence submitted by police, decisions not to prosecute both suspects were issued in November 2005”.
“In relation to both suspects it was determined that there was insufficient evidence to provide a reasonable prospect of conviction for any offence.
“Therefore the test for prosecution was not met. “
The spokeswoman added that Person 3 admitted to being in a car with an unnamed person and that they went to a location in Co Donegal, rather than Fermanagh as stated by the Police Ombudsman, where a parcel was left.
“He claimed that he did not know that the parcel had contained a bomb until he heard about it later on the news.
“He denied an allegation that he had been involved in planting the bomb.”
The spokeswoman said there was “no admissible evidence other than Person 3’s statement in interview".
“It was recognised that the statement was self-serving but it was concluded that there was no admissible evidence to disprove it beyond reasonable doubt,” she said.
In relation to Person 2, the PPS spokeswoman said: “It was considered that a court was unlikely to find the admissions to be sufficiently reliable for the purposes of conviction in light of the absence of any independent corroboration of the admissions, the suspect’s history of making statements and admissions that he subsequently asserted were untrue, and his relevant psychiatric history”.