The Court of Appeal decision is expected to start a court battle between the Palestinians' lawyers and Home Secretary Jack Straw, who imposed gagging orders on intelligence agency information said to be vital to the defence.

Samar Alami (above) and Jawed Botmeh were jailed for 20 years

Lord Justice Roch, Mr Justice Butterfield and Mr Justice Holman allowed the appeal to go ahead on the grounds that public interest immunity information was not disclosed and this could have affected the outcome of the trial.

The legal challenge follows an allegation by a former intelligence officer, David Shayler, over how much was known in advance about the embassy plot.

Mr Shayler, now in exile in France following the UK's unsuccessful attempt to extradite him for revealing British secrets, had said the secret service was warned that an attack was imminent.

Israeli secret service agents were also said to have been allowed to visit the site of the bombing and take away material for examination, evidence that might have helped the Palestinians' case.

Michael Mansfield, who is representing Jawed Botmeh and Samar Alami, had argued that this undisclosed information was just the tip of the iceberg and that the rest of the information should be released.

But the home secretary had said that even the MI5 warning would not have prevented the bombing.

Human rights laws

Non-disclosure could also contravene Article 6 of the European Human Rights Convention, which is due to be incorporated into English law.

Botmeh, aged 30, a businessman, and banker's daughter Alami, 32, were jailed for 20 years in December 1996 for conspiracy to cause explosions in the UK.

The pair, both graduates from English universities, were convicted on the basis that they were part of a UK-based extremist terrorist cell, which planned to sabotage the Middle East peace process.