The Government has agreed to pay £2.2m to a Libyan sent back with his family to face prison and torture under Colonel Gaddafi's regime.
Sami al Saadi, a leading Gaddafi opponent, was forced to fly home in 2004 after spending years trying to avoid agents working for the Libyan dictator.
He, his wife and his four children were made to board a plane to Tripoli when they were in Hong Kong in a joint UK, US and Libyan operation.
Mr al Saadi was jailed and tortured for several years. When he was eventually released from Abu Salim prison, he apparently only weighed seven stone and was close to death.
Lawyers claim the case is the only known example of extraordinary rendition of a family with young children during the war on terror.
Mr al Saadi said the money would allow his family to be educated in Libya and cover medical treatment for his prison injuries. Some will also go to help other Libyan torture victims.
But he criticised the Government for still refusing to tell him the truth and indicated that he had only agreed to take the money because he feared a secret British trial.
"I went through a secret trial once before, in Gaddafi's Libya. In many ways it was as bad as the torture. It is not an experience I care to repeat," he said.
"Even now, the British Government has never given me an answer to the simple question: 'Were you involved in the kidnap of me, my wife and my children?' I think the payment speaks for itself."
He added: "We look forward to the result of the police investigation and hope there will be a full and fair public inquiry into our case."
Mr al Saadi's experience only emerged after the fall of Gaddafi's regime when CIA correspondence with Libyan intelligence was found in an office belonging to Moussa Koussa, the head of the dictator's intelligence agency.
It apparently said: "We are aware ... that your service had been co-operating with the British to effect (Sami al Saadi's) removal to Tripoli.
"The Hong Kong government may be able to co-ordinate with you to render (Sami al Saadi) and his family into your custody."
The operation in 2004 following the controversial "deal in the desert" struck with Gaddafi by then prime minister Tony Blair.
Human rights lawyer Sapna Malik said: "The sheer terror experienced by the al Saadi family when they were bundled on to their rendition flight and delivered up to their nemesis clearly lives with them all to this day.
"Having concluded one part of their quest for justice, they now look to the British criminal courts to hold those responsible for their ordeal to account and await the judge-led inquiry they have been promised."
A Government spokesman confirmed a settlement had been reached but stressed it had not admitted liability or been found liable by a court.
Libyan military commander Abdul Hakim Belhaj, another alleged victim of illegal rendition who went on to lead the battle for Tripoli, is still taking legal action.
He said: "I intend to fight to ensure the truth is told. I have said before, and I say again now: my wife and I will not allow the truth to be concealed.
"We look forward to giving evidence at trial, and seeing those responsible for our torture and that of Sami and his family held to account."