In a letter to Tony Blair in May 2001, he said distinguishing between deserving and undeserving terrorism suspects would be difficult since all were innocent in the eyes of the law.
He also envisaged having to use special legislation to override resistance to an amnesty law in the House of Lords.
The Labour government had already accepted publicly that discontinuing prosecutions for offences committed before the 1998 Good Friday peace agreement would be a “natural development”, the note to the prime minister said.
Mr Reid wrote: “In principle, I am attracted to a selective and reversible scheme which does not involve the creation of some kind of Immunities Commission. Sinn Fein will never accept a procedure which involved applicants having to admit their guilt to a commission.
“An applications process without admissions of responsibility would be widely criticised by victims’ groups as a charade.”
The Good Friday Agreement meant anyone convicted of paramilitary crimes was eligible for early release.
However, this did not cover those suspected of such crimes, nor did it include people who had been charged or convicted but had escaped from prison.
In February this year, it emerged during the trial of John Downey – accused of murdering four soldiers in the Hyde Park bombing in 1982 – that around 200 Irish republicans who were On the Run (OTR) had received letters stating that they were not wanted by police for paramilitary crimes committed before the Good Friday Agreement.
The UK government has insisted the scheme did not constitute an amnesty because it did not rule out future prosecution should new information emerge.
In 2005, another former Northern Ireland secretary, Peter Hain, tried and failed to have amnesty legislation passed after facing widespread opposition.
Mr Reid, now Lord Reid, said the most difficult question in May 2001 was what to do about members of the police and army who had also been accused of killings in Northern Ireland but who were to be excluded from his amnesty proposal.
Mr Reid, who was then Northern Ireland secretary, wrote: “I have enormous difficulty with this personally – on grounds of fairness and equity, and considering our responsibility towards those who risked their lives to combat acts of terrorism which are now to be set aside.
“However, on the merits of both principle and the future of Northern Ireland, I have been persuaded that it is the right approach.
“It is a key principle for us that the security forces operate within the rule of law.
“To do anything which undermined that position or which implied some equivalence between their actions and those of the terrorists would be very damaging, including internationally.”
His letter was published by the Northern Ireland affairs committee of MPs, which is investigating the OTRs scheme.
The separate use of royal pardons by the Labour government following the 1998 agreement was disclosed earlier this year.
Current Northern Ireland Secretary Theresa Villiers has revealed the royal prerogative was exercised in Northern Ireland on at least 365 occasions between 1979 and 2002.
But the true total may well be higher as the Northern Ireland Office has been unable to find the records for the ten-year period from 1987 to 1997.
She has issued a “fair and clear warning” to Irish republicans that they cannot rely on OTR letters to avoid future prosecution.