Unions say the news is a fitting farewell to the Chief Inspector of Schools

But the school - backed by its education authority, Greenwich - said the ruling was unfair and had been due to fight it in a landmark case at the High Court.

It is understood that Ofsted will now settle the school's costs and lift its recommendation that the school be placed under special measures, pending a re-inspection next term.

'Shortcomings'

Speaking on BBC Radio 4's Today programme on his last day in office, the Chief Inspector of Schools, Chris Woodhead, admitted Ofsted was at fault "technically".

"For that, I apologise to the school and, perhaps more importantly, to everybody who cares about inspection and the reputation of Ofsted."

It is a school with weaknesses, but there is a recovery plan in place which Ofsted admitted it didn't even read

Chris Roberts, leader of Greenwich Council

But he insisted that the substance of the inspectors' criticism of the school was valid.

"Crown Woods is a school where there are real problems and, in the interests of the children, the sooner we move beyond this wrangling over technical procedure and get on with the job of improving education the better," Mr Woodhead said.

It is understood the future inspection will look at a drop in GCSE performance this year and a doubling of the rate of expulsions between January 1999 and April 2000 to a level three times the national average.

'Haemorrhage of teachers'

Teachers at the school said the inspectors' original ruling was harsh and that the inspection team had not gathered enough evidence to substantiate their argument.

For example, while inspectors normally sit in on at least 8% of a school's lessons, at Crown Woods - the school argued - they judged only 3% of lessons.

Leader of Greenwich Council, Chris Roberts, dismissed the inspection as flawed, saying Crown Woods was not a school that needed special measures.

"It is a school with weaknesses, we accept that, but there is a recovery plan in place which Ofsted admitted it didn't even read."

The impact of the report had led to a "haemorrhage of teachers", Mr Brown claimed, as they sought jobs in schools which were not under fire.

'Fitting farewell'

Nigel de Gruchy, general secretary of the National Union of Schoolmasters Union of Women Teachers (NASUWT) said the case represented "a victory for the school and the LEA over the 'Ofsted dictatorship'".

"It is a fitting farewell message to the departing chief inspector, Chris Woodhead," said Mr de Gruchy.

If schools are to be labelled as failing, it should be fair and it should be accurate

Doug McAvoy, NUT

But teacher celebrations would be tempered with the thought that they would have to undergo another inspection, he added.

The settlement would, he said, establish a precedent enabling the judgement of Ofsted inspectors to be challenged.

BBC education correspondent, Sue Littlemore, said Ofsted's decision may tempt some schools to look for procedural errors in their inspection, upon which they could question the outcome.

But, she stressed, that verdict can only be challenged on a technicality - the decision to rank a school as good or bad was final.

Appeals procedure

Doug McAvoy, general secretary of the National Union of Teachers, said the situation highlighted the need for an independent appeals procedure.

"If schools are to be labelled as failing, it should be fair and it should be accurate," he said.

A spokesman for the Department for Education and Employment said the inspection process and the conclusions drawn were "entirely a matter for Her Majesty's chief inspector".

"Ofsted is independent and it is not for the department to comment on the outcome of this judicial review," the spokesman said.