[2] The Provisional Irish Republican Army (IRA) issued an immediate denial of responsibility,[2][3] and later stated that "an internal court of inquiry" had found that its local unit did not carry out the attack.

[5][6][7] On 24 August 2010, following an eight-year investigation, the Police Ombudsman for Northern Ireland published a report into the bombing, which stated that the Royal Ulster Constabulary (RUC) believed in the early 1970s that Father James Chesney, a local Roman Catholic priest, was the IRA's quartermaster and Director of Operations of the South Derry Brigade.

[8] The report found that the possibility of his involvement in activities including the Claudy bombing was covered up by senior police officers, government ministers and the Roman Catholic hierarchy.

At 10:30, a bomb hidden inside a stolen Morris Mini Van detonated outside the Beaufort Hotel on Church Street, killing three people, two of whom had been injured in the first explosion.

[12][13] The bomb outside the post office on Main Street exploded almost simultaneously, causing extensive damage to buildings and vehicles but as the area had been cleared, there was no loss of life.

[2] In December 2002, following a review of intelligence and other material related to the bomb explosions in Claudy, it was revealed that Father James Chesney had been a leading member of the IRA's South Derry Brigade.

[5][6][7] Derry politician Ivan Cooper (of the Social Democratic and Labour Party), stated in 2002 that the IRA and Father James Chesney (a Catholic priest from the nearby parish of Desertmartin) were involved in the attack.

As part of the investigation, the police uncovered documents showing that the then Secretary of State for Northern Ireland Willie Whitelaw discussed Chesney's involvement with Cardinal William Conway.

On 24 August 2010, the Police Ombudsman for Northern Ireland published a report into the bombing which concluded that the RUC, British government and the Catholic Church covered up Chesney's involvement.

[20] The report stated:The arrest of a priest in connection with such an emotive atrocity at a time when sectarian killings in Northern Ireland were out of control and the province stood on the brink of civil war was feared, by senior politicians, as likely to destabilise the security situation even further.

[20] According to the report by Al Hutchinson, the Police Ombudsman,The RUC's decision to ask the government to resolve the matter with the Church and then accept the outcome, was wrong.

[14]The report found the following: A memorial to those killed and injured by the bombing was erected on Claudy's Main Street in 2000, consisting of a bronze figure of a kneeling girl, created by sculptor Elizabeth McLaughlin, mounted on a stone plinth.