The US justice department has said mistakes were made in its prosecution of a suspected terror cell and it will ask a judge to dismiss charges.
Elmardoudi and Koubriti will be cleared of the terror charges
The arrest of the three suspects in Detroit six days after the 11 September 2001 attacks was seen as a milestone.
At the time, prosecutors said the men were part of a "sleeper cell" that conspired to help terrorists.
Correspondents say the news will be embarrassing for George W Bush on the eve of his convention appearance.
President Bush is due to be formally adopted as the Republican Party candidate for November's presidential election at the convention in New York on Thursday.
Prosecutors told defence lawyers of their decision in a closed-door meeting on Tuesday with a district judge, say media reports.
In a critical 60-page memo, the justice department said it supported the Detroit defendants' request for a new trial on document fraud charges and that it would no longer pursue terrorism charges against them, the Associated Press says.
'Pattern of mistakes'
The department's decision came after an internal investigation which showed prosecutors failed to pass on several pieces of evidence to defence lawyers before
the trial last year.
"In its best light, the record would show that the
prosecution committed a pattern of mistakes and oversights
that deprived the defendants of discoverable evidence
(including impeachment material) and created a record
filled with misleading inferences that such material did
not exist," the justice department said.
The lawyers for the three men convicted - Abdel-Ilah Elmardoudi, Karim Koubriti and Ahmed Hannan - welcomed the announcement.
"We're extremely grateful," William Swor, lawyer for Mr Elmardoudi, told the Associated Press. "It's a major victory."
Mr Elmardoudi and Mr Koubriti were originally found guilty of conspiring to support Islamic extremists plotting attacks in the US and Middle East, while Mr Hannan was found guilty of a fraud charge.
At the time of the initial convictions, prosecutors said a video and sketches found in the raid showed potential targets including Las Vegas and Disneyland in California, as well as US military targets in Turkey and Jordan.
Defence lawyers suggested the allegations against the men were cooked up by the prosecution's star witness, Youssef Hmimssa, a self-confessed scam artist who lived briefly with some of the defendants and whose photo was on fraudulent documents found during the raid.