The three-judge panel ordered U.S. District Judge Leonie Brinkema to work out a compromise on the key issue: whether Moussaoui should have access to al Qaeda witnesses who could help his case.
The government had asserted that Brinkema, in Alexandria, Va., exceeded her authority by ruling that Moussaoui — an acknowledged al Qaeda member — could have access to three prisoners from Osama bin Laden's terrorist organization. The three-judge panel of the 4th U.S. Circuit Court of Appeals rejected the government's argument.
Rather, the judges affirmed the trial judge's findings that "the enemy combatant witnesses could provide material, favorable testimony on Moussaoui's behalf."
However, the appeals judges rejected Brinkema's view that it was not possible to craft a compromise — saying that written statements from the prisoners could substitute for direct questioning of the witnesses.
Moussaoui is the only U.S. defendant charged as a conspirator along with the Sept. 11 hijackers. He is accused of planning to attack the United States and its citizens, although the indictment also includes Moussaoui's prior conduct.
Judge Brinkema sought to punish the government for refusing her orders allowing access to the prisoners — barring all evidence related to Sept. 11 and also banning the death penalty, which the government said it would seek if Moussaoui was convicted.
The appeals judges rejected the sanctions.
"No punitive sanction is warranted here because the government has rightfully exercised its prerogative to protect national security interests by refusing to produce the witnesses," the court said.
The appeals court said Brinkema was wrong in rejecting the government's proposal to provide written summaries of statements from the witnesses Moussaoui sought for his defense, rather than providing the actual witnesses to testify at his trial.
The court instructed Brinkema to work with the government, Moussaoui and his court-appointed attorneys to craft the language of the statements that will be presented to the jury. The judges said the statements should use the exact language from the witness interrogations "to the greatest extent possible."
The court said Moussoui and his lawyers could pick from the summaries of the witness interrogations the statements they want to present to the jury and Brinkema then would craft the final language. When she finished, Moussaoui would have the final say on whether to submit the statements to the jury.
Chief Judge William W. Wilkins wrote the opinion. Judges Karen J. Williams and Roger L. Gregory concurred with parts of the opinion but dissented from other parts. Gregory said the instructions for crafting the witness statements for the jury put Brinkema "in a thoroughly untenable position."
"We are asking the court to do something that it has stated cannot be done," Gregory said. "It will be difficult, perhaps impossible, for the district court to credibly prepare substitutions that it would consider admissible," given Brinkema's previous rulings on the government's efforts to provide substitute testimony.
CBS News Legal Analyst Andrew Cohen says the appeals decision opens the door to legal challenges down the road.
"The appellate court is trying to fit a round peg into a square hole -- trying to give Moussaoui his fair trial rights while recognizing the interests of the government in protecting its intelligence gathering methods,'' says Cohen.
"I'm not sure you can do that and comport with the Constitution. So this ruling clearly will move the case forward a bit but it also generates a huge issue back on appeal if Moussaoui ultimately is convicted."