After all, they had someone they thought was a bomb-wearing terrorist under surveillance, essentially they had the advantage on him, but they waited to confront him, and when they did, they quickly lost control of the situation. He was able to run down into a tube station and actually get onto a train, a split second away from setting off his bomb and killing civilians.
The fact that the only way the police could prevent him from setting off his bomb on a tube train was to pump him full of bullets shows how badly they screwed the pooch on this one.
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