DETROIT, Aug. 31 - The Justice Department has asked a federal judge to throw out terrorism convictions against two Arab men accused of forming a sleeper cell based here, people involved in the case said Tuesday. The move abandons the crucial charge in what was the first major terrorism trial after the Sept. 11 attacks.

The department has also conceded errors in its handling of the case, though it will pursue a new trial on document fraud charges, the sources said.

"The defense is ecstatic about their decision, and while we had hoped the case would have been dismissed in its entirety, we believe we are up to the challenge of the document fraud case," said Jim Thomas, a lawyer for one of the defendants.

The department is expected to make the decision public on Wednesday. It was first reported Tuesday evening by The Associated Press.

In June 2003, the government won convictions on a material support of terrorism charge against two of four Arab men it accused of forming what it called a "sleeper operational combat cell." It also won a document fraud conviction against a third man. A fourth man was acquitted.

At the time, the administration hailed the convictions as a major victory in the fight against terrorism.

"Today's convictions send a clear message," Attorney General John Ashcroft said at the time. "The Department of Justice will work diligently to detect, disrupt and dismantle the activities of terrorist cells in the United States and abroad."

But the case unraveled on several fronts.

The lead prosecutor, Richard Convertino, was removed late last year and is being investigated for misconduct. He, in turn, has filed a lawsuit against the Justice Department and accused his superiors of retaliating against him after he agreed to testify before the Senate Finance Committee about terrorism. The committee's chairman, Senator Charles E. Grassley, an Iowa Republican and a persistent critic of the Justice Department, has characterized Mr. Convertino as a whistle-blower.

New prosecutors said at a hearing in December that they had discovered important evidence that had been withheld and should have been turned over to the defense, including material that raised questions about the credibility of the government's star witness.

At the hearing, the federal judge, Gerald E. Rosen, admonished Mr. Ashcroft for violating an order barring discussion of the case.

Judge Rosen also ordered a scouring of the case file, which lasted for more than six months before federal prosecutors recently turned over a substantial amount of new evidence to the defense. The evidence has not been made public because the judge has forbidden lawyers to discuss the case. Defense lawyers had been expected to refile a motion to dismiss the case based on the new evidence.

Justice Department officials did not return calls for comment.

The case began just six days after the Sept. 11 attacks, when federal agents raided an apartment in Dearborn, a suburb of Detroit with a large and prominent Arab-American community. The apartment had once been occupied by an Arab immigrant on the government's terrorism watch list, but agents instead found three Arab immigrants as well as forged passports and identification papers and more than 100 religious audiotapes espousing what the government said were radical views.

Agents also found a day planner with crude sketches that prosecution witnesses said included an outline of an American air base in Turkey used to patrol Iraq's no-fly zone. And they found what looked like a tourist's videotape that prosecutors contended was interspersed with video of sites including Disneyland and the New York Times building.