But 18-year-old Samuel Sheinbein will not be extradited immediately. His lawyer has 50 days to appeal the decision to the Israeli Supreme Court, and the appeal could take months to be decided.
The case had strained relations between Israel and the United States, which wants Sheinbein extradited for his alleged role in the brutal killing last year of Alfredo Tello Jr.
As the decision was announced, Sheinbein remained expressionless. His brother draped an arm around him as their mother, Victoria, cried nearby.
District Judge Moshe Ravid upheld Sheinbein's claim to Israeli citizenship but said he still has no right to stay in the country because he had not maintained close ties to Israel.
Israeli law normally allows for citizens to be tried in Israel instead of being extradited.
"The defendant can be extradited because under the extradition law a citizen is defined as someone who has the status of Israeli citizen and has a connection to the country," Ravid wrote.
Sheinbein's lawyer, former Justice Minister David Libai, said he would appeal. His client will remain in jailed until the Supreme Court's decision on the case, which could take several months, Libai said.
"This is a very new and original interpretation of the law," Libai told reporters after the decision.
U.S. Embassy spokesman Larry Schwartz said the United States welcomed the decision and looked forward to cooperating with Israeli officials in the event of an appeal.
Sheinbein fled to Israel on Sept. 21, 1997, two days after the mutilated body of Tello was discovered in the garage of an empty house near the Sheinbein home in Silver Spring, Md. Shortly after arriving, he was picked up by police and hospitalized briefly, suffering from a drug overdose.
A second suspect, Aaron Needle, hanged himself in April, one day before his murder trial was scheduled to begin.
Sheinbein claimed Israeli citizenship through his father, who was born in pre-state Palestine, which was under British rule before the Jewish state was founded in 1948.
The defense strategy caused an uproar in Israel and the United States and threatened relations between the two allies. Members of the U.S. Congress called for delaying Israeli aid packages if Sheinbein was not returned.
But the United States backed down when Israel's Justice Ministry rejected Sheinbein's citizenship claims.
Libai said the family had brought Sheinbein to Israel in part to prevent him from committing suicide. He also said that the family was concerned that Sheinbein would become the target of revenge attacks, especially in U.S. jails.
The Maryland resident would be tried as an adult in the United States even though he allegedly ommitted the crime at the age of 17. But Libai said the Israeli judicial system could try Sheinbein as a minor, which would minimize the sentence if he is found guilty.
Youths convicted of murders in Israel usually receive 16-year sentences as opposed to adults, whose average sentence is 24 years.
In addition, prison life in Israel is much less severe than in the United States. Many prisoners get one weekend off a month after completing the first quarter of the sentence.
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