Birmingham Guantanamo Bay detainee Moazzam Begg is set to receive a compensation payout totalling millions of pounds from the British government.
Justice Secretary Kenneth Clarke said details of the out-of-court settlement to about a dozen UK citizens would remain confidential.
Among those expected to receive payments, thought to run into millions of pounds, is the father-of-four from Sparkhill, who was accused of being a member of al-Qaeda and held at Guantanamo Bay for almost two years before begin released without charge.
Several former detainees have complained of mistreatment during their detention, including allegations the Government knew they were being illegally transferred to Guantanamo Bay but failed to prevent it and that British security and intelligence officials colluded in their torture while they were held abroad.
Mr Begg was unavailable for comment after the announcement.
Mr Clarke said: “The Government has now agreed a mediated settlement of the civil damages claims brought by detainees held at Guantanamo Bay.
“The details of the settlement have been made subject to a legally-binding confidentiality agreement.
“No admissions of culpability have been made in settling these cases nor have any of the claimants withdrawn their allegations.”
The settlement means an independent judge-led inquiry into the allegations can now go ahead. It is hoped former Appeal Court judge Sir Peter Gibson will start the inquiry’s work by the end of this year and report within 12 months.
The Secret Intelligence Service said the settlement will allow both agencies “to concentrate on protecting national security”.
Mr Begg, 41, lived in Birmingham where he was a law student and ran an Islamic book and video store. He was arrested by the CIA in on alleged terror offences in Pakistan in 2002.
He was held at Bagram Theater Internment Facility before being transferred to Guantanamo Bay in 2003.
He was released in 2005 and flown back to the UK where he was arrested under the Terrorism Act 2000 before being released without charge.