A US military judge has thrown out charges against two Guantanamo Bay detainees, casting fresh doubt on efforts to try foreign terror suspects.
Mr Khadr was reportedly taken to Afghanistan at the age of 10
Both cases collapsed because military authorities had failed to designate the men as "unlawful" enemy combatants.
In one case a Canadian man, Omar Khadr, was accused of killing a US soldier in Afghanistan with a grenade.
Charges were also dropped against Salim Ahmed Hamdan, a Yemeni accused of being Osama Bin Laden's driver and bodyguard.
The BBC's James Westhead in Washington says the rulings deal a stunning blow to the Bush administration's attempt to bring its detainees at Guantanamo Bay to trial.
Under a new system of military justice approved by Congress last year, detainees facing trial must be designated "unlawful enemy combatants".
When they were assessed years earlier they were described only as "enemy combatants". The word "unlawful" did not appear, giving the new tribunals no jurisdiction.
It seems the same may apply to all the other 380 detainees, leaving the tribunal system in legal limbo while Bush administration lawyers race to clarify the situation.
The US government has basically three options, our correspondent says:
- throw the whole system out and start again, which would be very embarrassing for the Bush administration
- redesignate all the detainees as "unlawful enemy combatants", which would require a separate administrative hearing
- appeal against the ruling - but this would need to be handled by an appeals court, the military commissions review, which has not yet been established
Defendant Omar Khadr, 20, appeared in court on Monday wearing a prison uniform, light sandals and a straggly beard.
He was just 15 years old when he was captured in Afghanistan, and was accused of killing a US soldier during a battle at a suspected al-Qaeda base in 2002.
He appeared in court charged with murder, attempted murder, conspiracy and providing support for terrorism.
Mr Hamdan says he was just a driver and not an al-Qaeda member
The judge left open the possibility that Mr Khadr could be re-charged if he appeared before an official review panel and was formally classified as an "unlawful" enemy combatant.
He said prosecutors could lodge an appeal within 72 hours, although it was not immediately clear who they could appeal to. Prosecutors have indicated they intend to appeal.
All charges were dropped in the case of Salim Ahmed Hamdan, accused of serving both as chauffeur and bodyguard to al-Qaeda leader Osama Bin Laden.
Lawyers for Mr Hamdan said: "It was a victory for the rule of law and the law of war."
The tribunal's chief defence counsel, Marine Colonel Dwight Sullivan, said the rulings were not a technicality, but another demonstration that the system did not work.
Senator Chris Dodd, a Democratic presidential candidate, said the system was corroding America's foundation of freedom.
Senator Arlen Specter, the senior Republican on the Senate Judiciary Committee, told the New York Times that Monday's ruling could prompt Congress to re-evaluate the legal rights of detainees.
"The sense I have is that there's an unease, an uncomfortable sense about the whole Guantanamo milieu. There's just a sense of too many shortcuts in the whole process," he said.
The Guantanamo Bay facility was set up by the US in January 2002 to detain foreign prisoners suspected of links with al-Qaeda or the Taliban.
About 770 inmates - many from the conflict in Afghanistan - have been at the camp on Cuba, which is not subject to normal US court rules.
Only one person - Australian David Hicks - has been convicted at Guantanamo. He was jailed for nine months in March 2007, and is now serving the sentence in Adelaide.