Justices said that the governments are not protected from lawsuits in U.S. courts over old claims.
In a separate decision, the justices ruled unanimously Monday that the Bush administration can skip a lengthy environmental study and open U.S. roadways to Mexican trucks as soon as it wishes.
Maria Altmann, who fled Austria, had attended the Supreme Court argument and said justices were one of her last hopes for the return of six Gustav Klimt paintings, including two colorful, impressionistic portraits of her aunt.
She filed a lawsuit against the Austrian government in federal court in California, and won rulings that allowed her to pursue the case.
Justices agreed 6-3, a ruling that emboldens victims of wartime atrocities to pursue lawsuits. Women who claim they were used as sex slaves during World War II have sued Japan, and Holocaust survivors and heirs have brought a case against the French national railroad for transporting more than 70,000 Jews and others to Nazi concentration camps. Those cases are pending at the Supreme Court.
Justice John Paul Stevens, writing for the majority, said that the State Department can still ask courts to dismiss such lawsuits.
But he said that suits are not barred by a 1976 law, or a 1952 U.S. government policy that shielded some countries from lawsuits while allowing suits against some foreign government commercial ventures.
Nazis had looted the possessions of Altmann's wealthy Jewish family, including the prized paintings that now hang in the Austrian Gallery. She and her husband escaped to America after she had been detained and her husband imprisoned in labor camp.
In a dissent, Justice Anthony M. Kennedy joined by Chief Justice William H. Rehnquist and Clarence Thomas said the decision "injects great prospective uncertainty into our relations with foreign sovereigns."
It was not clear if the court's decision will lead to many successes in old cases.
A Bush administration lawyer had told justices that it would be unprecedented to have U.S. judges resolving lawsuits against foreign countries over expropriated property. The administration argued it would harm America's relations with those countries.
Stevens said the Supreme Court's decision was a narrow one — permitting some lawsuits without deciding the specific merits of the Altmann case.
In another decision, the high court ruled that the Bush administration can skip a lengthy environmental study and open U.S. roadways to Mexican trucks as soon as it wishes.
The justices thus ruled against labor and environmental organizations that have long fought expansion of Mexican trucking within the borders of the United States despite a guarantee this country made when it signed the North American Free Trade Agreement more than a decade ago.
Ruling on narrow procedural issues, the court said that the president has authority to open the border, and a federal agency responsible for truck safety has no say in the matter. Thus, the agency was under no obligation to study environmental effects from opening the border, as a federal court had ordered.
As a practical matter, Monday's ruling may mean little. The Bush administration had already begun the court-ordered study and expected to complete it soon. The study could only delay, not prevent, the border opening, and the White House had already said it would let the trucks roll as soon as it was free to do so.
"This is more symbolic than it is meaningful as a practical matter," reports CBS News Legal Analyst Andrew Cohen. "It's an endorsement by the court of the administration's power to make treaties and then stand by them in the face of conflicting policies."
President Bush ordered opening all roads to the trucks in 2002, but the dispute has been tied up in courts.
NAFTA, signed in 1993 by the United States, Mexico and Canada, allowed Mexican trucks to eventually use a large portion of U.S. roads. Mexican trucks are limited now to commercial border zones, forcing long lines at border crossings and complicated transfers of goods being shipped from Mexico to the United States.
Under NAFTA, Mexican trucks were to have gained full access to U.S. roads beginning in 2000. But the Clinton administration, under pressure from labor and consumer groups, refused to grant them entry. Mexico successfully challenged the moratorium through a free trade tribunal.
The California-based 9th U.S. Circuit Court of Appeals had ordered the government to do a $1.8 million study, which was expected to run a year or more. It was not immediately clear whether the study would continue after Monday.
The Bush administration had appealed to the high court for help, arguing that the two-decade moratorium on Mexican trucks should end.
The ruling ends a challenge from the consumer group Public Citizen, the Teamsters and others who had sued on safety and environmental grounds. The opponents argued that Mexican trucks are typically older and more polluting than American trucks.
Mexican trucks make approximately 4.5 million border crossings every year. Mexico claims the moratorium has cost it more than $2 billion.
In other Supreme Court decisions:
Bankruptcy law protects payments from a person's pensions and annuities, but does not mention Individual Retirement Accounts, which are at issue in a case involving an Arkansas couple.
A fractured court refused to consider replacing that map with a GOP-drafted redistricting plan, a defeat for Republicans who have sought to reopen the boundary-drawing process in several states to protect their control of the House.
Sabri Samirah, head of the United Muslim American Association, wanted the high court to allow him to return from his native Jordan, at least temporarily. Samirah is contesting U.S. authorities' decision to turn him away as he attempted to return to the country after a visit to his ailing mother.