His youngest child Nick set his sights on skateboard stores, his older son Alex rendezvoused with a girlfriend and his wife, Maria, shopped, shopped, shopped. In many ways Paul Burrell and his family seemed like typical tourists when they vacationed in New York City last week. Except, of course, for the gathering storm they had left raging in England. Recently cleared of the charges of stealing, Diana's former butler finds himself swept up in an explosive scandal rife with charges of gay rape, palace cover-ups and a mysterious incident involving a member of the royal family. "On a seismic scale of 1 to 10, I rate this scandal a 7 so far," says veteran Windsor watcher James Whitaker. "It's extremely serious. I would say the royals are bleeding badly."

And Britain's Fleet Street reporters are relishing the bloodbath. Grabbing headlines are claims by George Smith, 42, a former valet in Prince Charles and Diana's household, that he was raped by a trusted aide to the Prince, and that he witnessed a separate "incident" between a palace servant and a member of the royal family. The nasty allegations all surfaced after a judge dropped the charges against Burrell, 44, who was on trial for pilfering 310 items from Diana's Kensington Palace apartments. He got off the hook when Queen Elizabeth suddenly recalled the butler telling her in 1997 that he was holding some of Di's things for "safekeeping" after her death. That timely revelation abruptly halted his trial Nov. 1, just before he would have been called to testify. Fully two-thirds of Britons polled believe the Queen sought to stop the trial before more palace secrets were disclosed.

If it was a royal ploy to avoid a rollicking scandal, it didn't work. Burrell accepted $468,000 from Britain's Daily Mirror to talk about the case, a deal which prompted other, spurned tabloids to sling mud at the beleaguered butler. One paper dredged up stories from an alleged male lover, while another printed claims by disgraced British entertainer Michael Barrymore that Burrell tried to seduce him three days after Di's death. At a press conference Burrell denounced a "campaign of vilification" against him. "I just never expected it to be so vicious and personal," he said.

The charges hurled at Burrell, though, were schoolyard stuff compared to what the tabs have labeled the "rape tape." In 1996 Diana apparently recorded a conversation with former valet Smith in which he claimed to have been raped in 1989. Not long after Diana's 1997 death, her sister Lady Sarah McCorquodale spotted the tape, along with private letters and a ring, given to Diana by her former lover James Hewitt, in a wooden box. But the contents went missing soon after. Police were searching for but did not find them when they visited Burrell's Cheshire home in January 2001 and discovered Diana's personal items.

Newspaper stories about the tape prompted Smith to make his story public in Britain's Mail on Sunday Nov. 10, and his alleged attacker, who remained anonymous, to publicly deny the rape and label Smith "an alcoholic" who gave "varying accounts" of the event. But Smith also made his second claim about a member of the royal family—a revelation that could have come to light during Burrell's trial.

The steady stream of bombshells threw the Windsors into a panic. Prince Charles met with top aides at his High-grove home and on Nov. 12 entrusted his private secretary, Sir Michael Peat, to look into the matter. Peat even appeared on television to vow a thorough examination of the collapse of Burrell's trial and any cover-up of Smith's allegations. "To have a private secretary answering questions on television is totally unprecedented," says Robert Lacey, author of Monarch. Still, the British press demanded an external review. Peat "might as well not bother," says Paul Flynn, a Member of Parliament. "They should open up the inquiry to people who are not royal groupies."

What Britons want to know, of course, is the identity of the royal involved in the alleged encounter witnessed by Smith. That revelation could determine just how badly this scandal rattles the monarchy. "Loyalty to [the Windsors] is pretty fragile," says Flynn. "It will disappear like the morning dew when challenged with a bit of daylight."

Alex Tresniowski
Simon Perry, Nina Biddle and Pete Norman in London and Liza Hamm in New York City