The News of the World paid £125,000 ($255,000) to the fund supporting the search for Madeleine McCann as part of an apology for publishing Kate McCann's diaries - on condition that the terms of the deal remained secret.

The payment was made after the missing girl's parents expressed their outrage at the story, which Kate McCann said made her feel "mentally raped". All the parties involved in the negotiations over the payment, which was agreed in September 2008, were asked to sign a confidentiality agreement hiding the scale of the newspaper's culpability.

The payment was made despite claims by the defunct newspaper's editor at the Leveson inquiry last week that he believed he had had the full support of the McCanns to publish.

Colin Myler, who edited the NOTW from 2007 until it closed this year, told the inquiry he had received repeated assurances from his head of news, Ian Edmondson, that the McCanns' spokesman, Clarence Mitchell, supported publication - a claim which has been strenuously denied.

Myler told the inquiry that he subsequently ran an apology and paid a "substantial sum" because "he felt very bad that she didn't know". 

However, the NOTW initially tried to minimise the compensation. A source at News International, the owner of the newspaper, said there were hours of negotiations between the company's lawyers and Carter-Ruck, the solicitors hired by the McCanns, in the days following publication of the story on September 15, 2008.

A deal was finally struck in which a £125,000 payment was agreed, but all parties were obliged to sign agreements that they would not talk about the size of the compensation. Yesterday Kate and Gerry McCann's spokesman and News International declined to comment.

The Leveson inquiry into the media will hear this week from former NOTW sports journalist Matt Driscoll, who was awarded almost £800,000 for unfair dismissal in April 2007 while on long-term sick leave for stress-related depression after a campaign of bullying provoked by the newspaper's editor at the time, Andy Coulson.

It will also hear via video link from Piers Morgan, former editor of the Daily Mirror and the NOTW who now works for CNN in New York. Morgan claimed in a GQ magazine interview in 2007 that phone hacking was "widespread" and that "loads of newspaper journalists were doing it" when Clive Goodman and Glenn Mulcaire were jailed in January of that year.

Asked in the interview whether he knew about voicemail interception while he was editor of NOTW, Morgan said: "Well, I was there in 1994-95, before mobiles were used very much, and that particular trick wasn't known about. I can't get too excited about it, I must say. It was well known that if you didn't change your pin code when you were a celebrity who bought a new phone, then reporters could ring your mobile, tap in a factory setting number and hear your messages.

"That is not, to me, as serious as planting a bug in someone's house, which is what some people seem to think was going on."

In 2006 Morgan wrote an article for the Daily Mail claiming that he was played a tape of a message Paul McCartney left on the mobile phone of Heather Mills.

"The couple had clearly had a tiff, Heather had fled to India, and Paul was pleading with her to come back," he wrote. "He sounded lonely, miserable and desperate, and even sang We Can Work It Out into the answerphone." 

- Observer