* Prosecution failed to produce "smoking gun" -Brooks lawyer
* Prime Minister's former media chief found guilty
* Cameron apologises for hiring Coulson
* Scandal shocked Britain's political elite (Adds further details)
By Michael Holden and Kate Holton
LONDON, June 24 (Reuters) - Rebekah Brooks, the former boss of Rupert Murdoch's British newspaper arm, was acquitted on Tuesday of orchestrating a campaign to hack into phones and bribe officials in the hunt for exclusive news.
A jury at London's Old Bailey court cleared Brooks unanimously but found Andy Coulson, Prime Minister David Cameron's former media chief and ex-editor of one of Murdoch's British titles, guilty of being part of the phone-hacking conspiracy after a trial that has lasted nearly eight months.
The conviction in one of the most expensive trials in British legal history forced Cameron to apologise for hiring Coulson as his media chief. "I'm extremely sorry that I employed him, it was the wrong decision," said the British leader.
On hearing of her acquittal in court, Brooks looked stunned and drew a sharp intake of breath before being led away by a nurse. Wearing a white jumper and dark blue trousers, she later walked free from the court through a scrum of photographers, clutching the hand of her husband Charlie who was also cleared of any attempt to hinder the investigation.
Brooks's lawyer Jonathan Laidlaw had argued the prosecution failed to produce a "smoking gun" during her 14 days of intense questioning on the stand. He likened the authorities' decision to take her to court over the charges involving the hacking of the phones of celebrities and crime victims to a medieval witch hunt.
Both Coulson and Brooks were former editors of Murdoch's News of the World, the 168-year-old tabloid the media mogul closed in July 2011 amid a public outcry over revelations that journalists had hacked into the voicemails on the mobile phone of murdered schoolgirl Milly Dowler.
The scandal shocked Britain's political elite, with prime ministers from both main parties shown to have been close to Murdoch and his senior staff including Brooks. Cameron ordered a public inquiry into press ethics in the immediate aftermath.
The 46-year-old Brooks was cleared of being part of a conspiracy to hack into phones to find exclusive stories, of authorising illegal payments to public officials and of trying to hinder the police investigation.
Police said there were probably more than 1,000 victims of hacking, including Queen Elizabeth's grandsons, Princes William and Harry, and William's wife Kate, and possibly as many as 5,500.
Politicians, celebrities, prominent sporting figures and even rival journalists were all targeted in a desperate attempt to find exclusive stories for Britain's top-selling newspaper.
But Laidlaw said only 12 confirmed hackings occurred during Brooks's time as editor from 2000-3, and she had been on holiday when Dowler's phone was tapped in 2002. Coulson, her deputy, was in charge that week.
He said during the trial that he had been aware of only one hacking incident and staff had kept the widespread criminal activity from him.
Prosecutors had argued both editors would have had to have been incompetent not to have known what their journalists were up to.
Two former journalists told the court that Coulson was fully aware of hacking, and in one email shown to the jury he instructed a news editor working on a showbiz story about a celebrity figure "to do his phone".
However, the most dramatic revelation during the trial, which began last October, was that Brooks and Coulson had had an on/off affair running over nine years from when they began working together on the News of the World in 1998.
Prosecutors had argued that this meant Brooks would have known all about the hacking that Coulson was involved in, while she said that they maintained a professional "chinese wall".
The prosecution also alleged Brooks and her husband were part of an elaborate plot to hide evidence and computers from detectives. However, Charlie Brooks said he had merely been hiding a briefcase from police which contained his collection of pornography and a novel he was working on.
Following the initial verdicts, Murdoch's British newspaper operation said it had changed the way it did business.
"We said long ago, and repeat today, that wrongdoing occurred, and we apologised for it. We have been paying compensation to those affected and have cooperated with investigations," a News UK spokesman said.
The maximum jail term for phone hacking is two years. The eight women and three men on the jury, who have been deliberating over eight days already, are still considering whether Coulson is guilty of authorising illegal payments to a public official. (Editing by Guy Faulconbridge and David Stamp)