A pilot wrongly accused of training the 9/11 hijackers is entitled to claim damages, the Court of Appeal has ruled.
Judges said evidence suggested "serious defaults" in the decision to detain Lotfi Raissi in prison for nearly five months after a US extradition request.
The ruling means the government has to reconsider the 33-year-old's claim for compensation, which it had refused.
Mr Raissi wants an apology and says his claim may run into millions of pounds. The government has said it may appeal.
'Faith in justice'
Speaking after the judgement, Mr Raissi, of west London, said he had suffered a miscarriage of justice, and had now been "completely exonerated".
"I am very glad. I always had faith in British justice.
"Surely I can expect to hear from the home secretary with the long-awaited apology very soon."
He said his wrongful arrest had left him blacklisted as a pilot and unable to work.
"They destroyed my life, they destroyed my career. For this I will never, ever forgive them," he said.
Mr Raissi said mistakes had been made but he hoped they would be rectified so he could move on with his life.
"I have tremendous respect for this country, for the people here and for this society... and I have no regrets living here or living the rest of my life here."
His lawyer, Jules Carey, said Mr Raissi's life had been "completely ruined" and he needs to be compensated for his loss of career, what happened to his family and his health and for his loss of liberty.
In giving the court's judgment, Lord Justice Hooper said: "The public labelling of the appellant as a terrorist by the authorities in this country, and particularly by the CPS, over a period of many months has had and continues to have, so it is said, a devastating effect on his life and on his health.
"He considers that, unless he receives a public acknowledgement that he is not a terrorist, he will be unable to get his life back together again."
Mr Raissi's wife Sonia lost a claim for compensation last year
Mr Raissi first applied for compensation in March 2004 under a Home Office scheme for people deprived of their liberty because of a miscarriage of justice.
He is claiming compensation for the time spent in prison and the money he paid to train as a pilot, estimated at about £60,000.
The Algerian pilot was arrested under the Terrorism Act at his home in the UK soon after the 11 September attacks on New York and Washington in 2001.
He was held under an extradition warrant issued at the request of the US government, which accused him of having trained the 19 hijackers.
The US alleged he attended flight training and used a flight simulator at a training school in Arizona at the same time as 9/11 hijacker Hani Hanjour.
Mr Raissi remained in Belmarsh Prison for four-and-a-half months until he was granted bail. The Crown Prosecution Service, which was representing the US, had objected to bail.
It later emerged that Mr Raissi and Hanjour may have flown on the same day at the flight school and may have trained on the simulator together.
However, there was no evidence he trained Hanjour or had any links with him or any of the other hijackers.
In April 2002, a judge ruled that there was no evidence connecting Mr Raissi to terrorism.
His appeal case was originally brought against the home secretary, but following the department's split, a decision on any compensation will be made by the Justice Secretary, Jack Straw.
David Blunkett, who was home secretary when the Raissi case came to court in 2002, said the director of public prosecutions and the attorney general were responsible for deciding whether to take a case through the courts, not the home secretary.
The Ministry of Justice said the court's judgement reversed a decision made by the divisional court in the secretary of state's favour.
"We are considering the implications and whether or not to appeal," a spokesman said.
In a statement, the Crown Prosecution Service said: "We will study the issues raised which affect us.
"The judgement reaches no firm conclusions regarding the CPS and we were not formally involved in the proceedings."
The Metropolitan Police also stressed it was not party to the legal proceedings.
"As always, our overriding concern was for the safety of the public and information passed to the Crown Prosecution Service in connection with the extradition proceedings was provided in accordance with UK law," a Scotland Yard spokesman said.
Mr Raissi's brother, Mohamed, was also arrested and detained for 42 hours, but won compensation from the Metropolitan Police last year, the level of which has yet to be determined. The Met are appealing against the judgement.
Mr Raissi's wife, Sonia, however, had her damages claim for £150,000 for being held for five days rejected by the High Court.