The memorandum stated the weight of classified information was as a prime reason for secrecy.
The secrecy provisions were also intended to draw out whistleblowers, to protect Afghan villagers - and those in intelligence and military fields who will only talk if what they say is protected.
The inquiry was announced in April this year and has yet to hold its first hearing.
New Zealand has never held an inquiry into or had any review of its 15-year commitment to Afghanistan, which cost 10 lives and more than $350m.
The closest it came was an NZDF review into its Provincial Reconstruction Team in Bamiyan province, which criticised military and political leadership. It never progressed beyond its draft version after military leaders judged it as inaccurate.
The current inquiry was sparked by the book Hit & Run, by journalists Nicky Hager and Jon Stephenson.
The book alleged a 2010 raid by the NZSAS was to avenge those responsible for our first death in combat but led to civilian deaths and injuries and a cover-up by military and politicians.
NZDF has always rejected the "revenge" claim and has said the NZSAS carried out the raid to remove the threat posed by those who had carried out raids on troops at Bamiyan.
While almost all of the inquiry appears to be lined up to exclude the public, the inquiry heads acknowledged the high level of public interest and the necessity for the public to have faith in the process.
They wrote "we accept the need to hold public hearings where possible, to preserve public confidence in the Inquiry".
They stated the opening and closing statements of core participants - NZDF, the villagers and the authors - could be open to the public.
It would also be considered whether "technical or similar" issues could be heard in public.
But much of the evidence would be closely guarded with lawyers acting for the villagers - or for Hager and Stephenson - receiving only summaries of classified material.
The decision to hold the inquiry largely in secret came after concerns raised about classified information from NZDF, the Government Communications Security Bureau, the
NZ Security Intelligence Service, the Department of Prime Minister and Cabinet and the Ministry of Foreign Affairs and Trade.
Those agencies all raised issue with providing the inquiry with classified information involving partner agencies in other countries.
The NZSAS received air support from United States aircraft during the raid. The US has stated a faulty gun sight on an Apache helicopter caused fire to go other than where it was intended.
NZDF wanted the inquiry to ask it for clearance before releasing the information more widely - even to lawyers acting for other parties.
The inquiry appeared to reach an impasse with DPMC, GCSB and NZSIS after the agencies refused to supply some material without a permanent non-disclosure being made first.
Arnold and Palmer said they wanted to see the documents before making such an order.
The three agencies - which form the core of the New Zealand Intelligence Community - also stated that "release of partner-controlled classified material held by them to the inquiry is unlikely to be permitted under the existing default disclosure permission".
Instead, "specific permission will have to be sought from partners for release" and "partners are unlikely to provide permission without assurances about the handling of information".
That would include the inquiry not providing the material to anyone who did not hold high enough security clearance.
Hager and lawyers acting for the villagers questioned whether the material actually needed to be classified. Both appear to have raised offshore inquiries where material was produced without difficulty despite initial concerns about classification.
It does not appear the inquiry took any further, or independent, advice before setting the rules around classified information.
The memo said it had hired Ben Keith, former deputy Inspector General of Intelligence and Security, to help assess information put before the inquiry and to suggest ways it could be redacted or summarised for those without security classifications.
