The Bureau of Diplomatic Security offered them limited immunity . They had no authority to do so because Bureau of Diplomatic Security is part of the State Dept. and the investigation is a DOJ matter .
Private contractors in Iraq are immune from prosecution under Iraqi law under a decree issued by Viceroy L Paul Bremer and the Coalition Provisional Authority in 2004. The Iraqi government could easily have changed the law but chose not to do so. Even with incidents involving Blackwater they still have not changed the law. My best guess is that despite the incidents they like the protection that Blackwater provides to Iraqi politicians .Iraqi politicians could I guess provide for their own security but many of them are more than satisfied with the protection Blackwater has provided.
The Blackwater contract with the State Dept expires in May 2008 and it is unlikely that Blackwater will compete for a renewal bid. My guess is now that they have prepared the field for their new endeavors in California
Randi Rhodes Suggests Blackwater Started California Fires | NewsBusters.org that the company will leave Iraq for good.