A mental patient who walked away from a state hospital and randomly stabbed a 9-year-old girl to death at a street fair was found innocent by reason of insanity Friday. David R. Peterson, 38, lacked the capacity to conform his conduct to the requirements of the law, a three-judge Superior Court panel unanimously concluded in acquitting him of murder and escape charges. However, Dr. Donald R. Grayson, a state-commissioned psychiatrist who examined Peterson, said it would be ``a dreadful mistake in judgment'' ever to release him from a high-security psychiatric facility. At Peterson's arraignment last summer, an angry crowd yelled ``Kill him, kill him!'' when he was brought to court. But there were no such demonstrations Friday. The girl's parents, Catherine and Robert Short, and a handful of their closest friends were present for the brief reading of the verdict. They showed no emotion as the decision was announced, and declined to comment when they left the courthouse. The Shorts are planning to sue the state. Peterson walked off the grounds of Connecticut Valley Hospital last July 28. He took a bus three miles downtown, bought a hunting knife at a Main Street sporting goods shop and walked only about 100 yards before pouncing on 9-year-old Jessica Short. He picked his victim at random from a crowd of hundreds attending a sidewalk sale and fair. He stabbed her 34 times before stunned and horrified bystanders and police could pull him away. Judges James Higgins, Barry Schaller and Salvatore Arena, who began deliberations Wednesday afternoon, ordered Peterson committed to the custody of the state mental health commissioner for evaluation. He will be held at the Whiting Forensic Institute, the state's only maximum-security institution, at least until another court hearing to determine whether he should be confined or released. His attorney, public defender Christopher James, said Peterson is happy to be at Whiting because he feels safer there. Psychiatrists hired by both the prosecution and the defense testified during the trial that Peterson represents a chronic danger to society and is as dangerous as a mentally ill person can be to others. Peterson, a chronic paranoid schizophrenic with a history of mental illness and violence, has spent 15 of his past 20 years in mental institutions. In 1971 and again in 1988, he was found innocent by reason of insanity in stabbing attacks and ordered committed to state hospitals. In 1988, he was moved from Whiting to Connecticut Valley Hospital after doctors at both places said they believed he could be adequately supervised in a minimum-security setting, said the state Psychiatric Security Review Board. Peterson's attorney said the case shows that the board, which by law has the primary duty of protecting society, should seek the recommendations of outside experts rather than relying solely on information coming from the hospitals. About two hours before he killed the girl, Peterson had been screaming about pain in his legs and arms that he blamed on the medication he was taking. The psychiatrist hired by the defense said the patient should have been confined to his ward after the outburst because he had a history of psychotic delusions being accompanied by violence. Instead, Peterson was allowed to follow his normal routine and go out onto the hospital grounds without supervison, according to court testimony. Peterson told police he killed Miss Short to take revenge on his doctors because they wouldn't change his medication. He told psychiatrists he went downtown to take revenge on his ``enemies'' _ whites of European descent _ and had pictured himself as a soldier marching into battle.