Reaction to the European Court of Human Rights judgment was sharply divided.
The Ulster Unionist leader, Mr David Trimble, said the ruling appeared to him to be "astonishing". Referring to the deaths of eight IRA men and a civilian at Loughgall, he said: "If I recall correctly, the republicans concerned attacked a police station, set off a bomb and opened up with heavy weapons on the police station before any fire was returned.
"I think in that sort of situation to say that the people who returned fire behaved improperly strikes me as perverse."
Mr Gerry Kelly, of Sinn Fein, said the decision was the "single most important legal judgment in 30 years of conflict".
The DUP deputy leader, Mr Peter Robinson, labelled the ruling "insane" and said no compensation should be paid to the families. "To suggest that the lawful security forces protecting the community against savage killers are acting improperly shows the folly of being bound to European institutions."
Families Acting for Innocent Relatives, a predominantly Protestant victims' group in south Armagh, said it planned a protest outside the European Court.
Mr Alex Attwood, of the SDLP, said while his party welcomed the decision as being in the interests of all in the North, "it does not validate or legitimise in any way the activities of the IRA".
He said the judgment confirmed that "no one person, government or illegal organisation can escape the consequences of their actions".