The authors give a complete classification of intertwining operators (symmetry breaking operators) between spherical principal series representations of $G=O(n+1,1)$ and $G'=O(n,1)$. They construct three meromorphic families of the symmetry breaking operators, and find their distribution kernels and their residues at all poles explicitly. Symmetry breaking operators at exceptional discrete parameters are thoroughly studied. The authors obtain closed formulae for the functional equations which the composition of the symmetry breaking operators with the Knapp--Stein intertwining operators of...