OTTAWA - Former Canadian Prime Minister Brian Mulroney apologized publicly on Thursday for accepting hundreds of thousands of dollars in cash from a German arms dealer, but he rejected suggestions he had taken kickbacks.

Mulroney, a mentor to current Conservative Prime Minister Stephen Harper, had for years declined to answer why exactly he took the money from Karlheinz Schreiber after leaving office in 1993. Schreiber says he handed over a total of C$300,000 (144,147 pounds). Mulroney said he received C$225,000.

The affair is one of the great mysteries of Canadian politics and efforts to uncover what happened have generated allegations of skulduggery and influence-peddling that involve senior officials and politicians.

Schreiber, awaiting extradition to Germany to face charges of fraud, bribery and tax evasion, says he paid Mulroney to help German firm Thyssen AG build a plant in Canada to assemble light-armoured vehicles.

Mulroney told legislators on Thursday that the money -- cash-filled envelopes handed over in a series of hotel meetings -- was in fact a retainer to promote use of the vehicles abroad in peacekeeping operations.

He said that while the deal had been legal, and while he had accepted no money while in office, he recognized he had made a serious error in judgment by agreeing to take cash.

"I apologize and I accept full responsibility for it," he told a parliamentary committee, saying he should instead have insisted on a check. The apology did not impress Pat Martin of the minority New Democrats.

"People use cash in business deals of that size when they're either trying to hide any record of something that they know to be wrong or if they're trying to avoid taxes ... neither look very good for a former prime minister, let me say," he told Mulroney.

The committee is looking into the so-called Airbus affair -- a 1990s investigation into suspected kickbacks connected to Air Canada's purchase of Airbus airliners in 1988, while Mulroney was prime minister.

At the time, Airbus was a client of Schreiber, who made millions of dollars in commissions on the deal. In 1995, Canadian officials sent a formal letter to Swiss authorities, implicating Mulroney in a scheme to accept kickbacks.

Mulroney successfully sued for libel and won a C$2.1 million settlement from the government.

"I never received a cent from anyone for services rendered to anyone in connection with the purchase by Air Canada from Airbus of 34 aircraft in 1988," he told the committee.

Last month, Harper ordered a formal probe into allegations of improper dealings between Mulroney and Schreiber -- who also has Canadian citizenship.

At the time of the Airbus deal, Mulroney and Harper were in different right-wing political parties. The two men are now friends, with Mulroney -- who left office after nine years with his popularity at record lows -- advising Harper.

After the four-hour hearing ended, several committee members expressed frustration at what they said were many discrepancies between the testimonies of Schreiber and Mulroney.

Schreiber has been fighting extradition to Germany for eight years and Mulroney said his former friend would say or do anything to avoid being kicked out of Canada.

Schreiber says he got little in return for the C$300,000 he claims he gave Mulroney and is suing Mulroney to get it back.

"My second biggest mistake in life, for which I have no one to blame but myself, is having accepted payments in cash from Karlheinz Schreiber," Mulroney told the committee.

"My biggest mistake in life -- by far -- was ever agreeing to be introduced to Karlheinz Schreiber in the first place."

Schreiber, who owns a condo in the most exclusive part of Ottawa, is out on bail while courts handle his latest appeal.

"He got what he wanted. He's sitting in his ... mansion chuckling," Mulroney said with a smile.

($1=$1.02 Canadian)