Canada apologized on Friday to software engineer Maher Arar, who was deported to Syria by U.S. agents after Canadian police mistakenly labeled him an Islamic extremist, and paid him $10.5 million in compensation.

Arar, a Syrian-born Canadian citizen, was arrested during a stopover in New York in 2002 on his way home to Canada from a holiday. He has said he was repeatedly tortured during the year he spent in Damascus jails.

U.S. officials deported Arar after the RCMP said he was a suspected Islamic extremist, but an official Canadian inquiry said there was no evidence he was linked to terrorism.

The deportation has become a sore spot in Canada-U.S. relations, and Prime Minister Stephen Harper renewed his call for Washington to remove Arar from its security watch list as he announced the settlement on Friday.

“On behalf of the government of Canada, I wish to apologize to you, Monia Mazigh (Arar’s wife) and your family for any role Canadian officials may have played in the terrible ordeal that all of you experienced in 2002 and 2003,” Harper said in a letter of apology which he read at a news conference.

In addition to the $10.5 million, an Arar lawyer said the government would pay for $1 million in legal fees.

Arar said afterwards that he could not begin to say how much Harper’s statement and the compensation meant.

“In doing so, the government of Canada and the prime minister have acknowledged my innocence. This means the world to me (and my family),” he said.

The official inquiry by Justice Dennis O’Connor found the RCMP had wrongly told U.S. border agents that Arar was a suspected Islamic extremist and slammed the police for incompetence and dishonesty. Canada’s top Mountie resigned in December over the issue.

Arar had initially sued Ottawa for $400 million, a figure he later cut to $37 million.

Harper defended the final settlement: “I know to some Canadians that will sound like an awful lot of money, but I can tell you that the reality is, given the findings of the O’Connor commission and the unjust treatment that Mr. Arar received, that figure is within this government’s assessment of what Mr. Arar would have won in a lawsuit.”

In Washington, Democratic Sen. Patrick Leahy issued a statement saying he was seeking answers as chairman of the Senate judiciary committee as to why Arar was sent to Syria.

“The question remains why. Even if there were reasons to consider him suspicious, the U.S. government shipped him to Syria where he was tortured, instead of to Canada for investigation or prosecution,” Leahy said.

Democratic Congressman Edward Markey called on the White House to imitate Ottawa. “The Bush administration should follow suit and admit publicly that it was cruel to detain and transfer Maher Arar to Syria for torture,” he said.

U.S. officials have said Arar will remain on their watch list because of unspecified information possessed by law enforcement agencies. Arar is also suing the United States for damages.

As for his personal life, Arar says he still suffers nightmares from his ordeal and hopes now to try to melt back into an ordinary life.

“I wish, if there’s a way, I could buy my life back,” he said. (Additional reporting by David Ljunggren in Ottawa and Deborah Charles in Washington)