The 5-4 ruling led by the court's conservative majority lowers the figurative wall separating church and state and clears a constitutional cloud from school vouchers, a divisive education idea dear to political conservatives and championed by Mr. Bush.
In another schools case Thursday, the court approved random drug tests for many public high school students, saying anti-drug concerns outweigh an individual's right to privacy. That vote also was 5-4.
Opponents of school vouchers call them a fraud meant to siphon tax money from struggling public schools.
The court endorsed a 6-year-old pilot program in inner-city Cleveland that provides parents a tax-supported education stipend. Parents may use the money to opt out of one of the worst-rated public schools in the nation.
The court majority said the program does not put the government in the unconstitutional position of sponsoring religious indoctrination, even though more than 95 percent of the vouchers are used to subsidize Catholic or other religious schooling.
Mr. Bush has been a staunch advocate of school vouchers, and emphasized the issue in his campaign for the White House.
Congress last year shelved that effort. But Mr. Bush resurrected the idea, proposing in his 2003 budget to give families up to $2,500 per child in tax credits if they choose a private school rather than a failing neighborhood public school.
Following the court's hearing on arguments in February, Education Secretary Rod Paige said he would continue advocating on behalf of both improved public schools and school choice.
Republican lawmakers in Congress agreed with Mr. Bush's stance.
The high court's ruling on drug tests upheld a program in Oklahoma that required students who want to take part in after-school activities to submit to random urinalysis.
The tests, required without any suspicion of drug use, covered students in grades 7 to 12 who sign up for such activities as cheerleading, choir, band, the academic team and the Future Farmers of America club.
On the last day of their term, the justices overturned a U.S. appeals court ruling that struck down the policy in the Tecumseh School District in Pottawatomie County for violating constitutional privacy protections against unreasonable searches.
"Because this policy reasonably serves the school district's important interest in detecting and preventing drug use among its students, we hold that it is constitutional," Justice Clarence Thomas said for the majority.
A student who refuses to take the test or who tests positive more than twice cannot take part in competition for the rest of the school year. Students are tested at the start of the school year and then randomly throughout the year, with names drawn every month.
Attorney Stephanie Mather, who represented the Tecumseh School District in the drug testing case, said school districts now have an additional tool to try to detect and deter drug use among students.
"We believe it is extremely valuable for the school districts to be able to do random drug testing, both for the students' safety while they are participating in those activities, and also to deter drug use among a large number of the students," Mather told CBS Radio News.
Key to the court's reasoning in the voucher case was that children in the Cleveland program have a theoretical choice of attending religious schools, secular private academies, suburban public schools, or charter schools run by parents or others outside the education establishment.
The fact that only a handful of secular schools and no suburban public schools have signed up to accept voucher students is not the fault of the program itself, Ohio authorities say.
The court majority agreed.
"We believe that the program challenged here is a program of true private choice," Chief Justice William H. Rehnquist wrote for himself and Justices Sandra Day O'Connor, Antonin Scalia, Anthony M. Kennedy and Clarence Thomas.
The Cleveland program goes too far toward state-sponsored religion, the dissenting justices said. It does not treat religion neutrally, as Rehnquist contended, wrote Justice David H. Souter. The majority is also wrong about the question of whether parents have a true choice among schools, Souter wrote for himself and Justices John Paul Stevens, Ruth Bader Ginsburg and Stephen Breyer.
"There is, in any case, no way to interpret the 96.6 percent of current voucher money going to religious schools as reflecting a free and genuine choice by the families that apply for vouchers," Souter wrote.
The Bush administration sided with Ohio, arguing that the program is constitutional because parents control where the money goes.
In Cleveland, the public money flows to parents, not directly to the church-run schools, the program's supporters noted.
Thursday's ruling continued a trend of the court in recent years to ease the path toward state support of religion.
In a case two years ago, the court ruled that providing educational equipment to religious schools with taxpayer money does not violate the Constitution. Three years earlier, it held that it was constitutional for public school teachers to provide supplemental, remedial instruction to disadvantaged students in religious schools.
In 1983, it ruled that taxpayers could deduct tuition, textbooks, and transportation expenses from state income taxes — expenses incurred by children attending private and religious schools.
In other Supreme Court rulings:
By a 5-4 vote, the high court declared that Minnesota's ethics rules, designed to protect the judiciary's integrity, impartiality and independence, unconstitutionally inhibits candidates on what they can discuss while running for office.
The punishment, revived in that state in 1995 as part of a get-tough program for criminals, is ``obvious'' cruel and unusual punishment, the court ruled 6-3.