updated 10/2/2008 7:40:36 PM ET 2008-10-02T23:40:36

A federal appeals court Thursday overturned the convictions of a Yemeni cleric and his deputy, finding they were prejudiced by inflammatory testimony about unrelated terrorism links in a case the United States once touted as a victory in its war against terrorism.

The 2nd U.S. Circuit Court of Appeals said Thursday that Sheik Mohammed Ali Al-Moayad and Mohammed Mohsen Zayed, convicted of supporting terrorists, can have new trials. The three-judge panel took the unusual step of ordering the transfer of the case to a new judge.

The men were convicted in federal court in Brooklyn after a six-week trial in early 2005 on charges of conspiring to support al-Qaida and Hamas, supporting the Palestinian group and attempting to support al-Qaida. Their trial featured testimony by an FBI informant who set himself on fire outside the White House, saying he wanted more money from the FBI.

Al-Moayad, 60, was sentenced to 75 years in prison. Zayed, 34, was sentenced to 45 years.

Inflammatory testimony
The appeals court said the defendants were prejudiced by testimony from a Scottish law student who told of a deadly suicide bombing on a bus in Tel Aviv and by an American citizen of Yemeni heritage who attended an al-Qaida training camp in Afghanistan in 2001.

It said testimony about the camp and particularly the government's presentation of images of Osama bin Laden and a top aide was "highly inflammatory and irrelevant and should not have been permitted by the district court."

Federal prosecutors were reviewing the appeals court's decision, a spokesman said.

Al-Moayad lawyer Robert Boyle said the ruling pleased him.

"I hope that my client, who is elderly and suffers from serious medical problems, will very soon be able to rejoin his family in Yemen," he said.

Zayed's trial attorney Jonathan Marks called the prosecution "a public-relations stunt by the Bush administration against people who were essentially innocent of the charges."

Marks said his client was "completely innocent and before this was a staunch anti-terrorist."

He said Zayed's incarceration since trial at the Supermax prison in Florence, Colorado, had left him mentally ill.

"I am told that he has lost his mind," Marks said. "This has been a terrible ordeal. I look forward to a new trial."

Millions given to bin Laden?
In its ruling, the appeals court recounted significant portions of the evidence in the trial, including testimony by Mohamed Alanssi, who set himself on fire in Washington in November 2004 to get more money from the FBI after the $100,000 he had been paid ran out.

Alanssi testified that the sheik had boasted of giving bin Laden $20 million in the years before the Sept. 11, 2001, attacks.

But the appeals court noted the government offered no evidence to contradict Al-Moayad's statements after his arrest that his relationship with bin Laden was long over, that he had since spoken out publicly against bin Laden and that bin Laden had called for his death.

Al-Moayad maintained that he supported bin Laden in the late 1980s, when the United States supplied weapons to Islamic resistance fighters in Afghanistan.

"Therefore," the appeals court noted, "the question of when Al-Moayad provided financial support to al-Qaida — in the late 1980s, when the United States was also supporting bin Laden, or in recent years, when al-Qaida has engaged in attacks against United States interests — was a crucial issue at trial."

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