Egypt's airport authorities have been told that a travel ban on U.S. pro-democracy activists has been lifted, airport sources said Thursday, opening the way to defuse a row that U.S. officials linked to $1.3 billion of annual military aid.

A judge had said Wednesday that Egypt was scrapping the ban, which barred the departure of U.S. citizens and others working for non-governmental organizations (NGOs) that Cairo says received foreign funds illegally.

Judge Abdel Moez Ibrahim told state media Thursday that, after an appeal by those charged, the case was switched from a criminal court to one handling misdemeanours where the maximum penalty was a fine, not jail.

With that, those involved could post bail of 2 million Egyptian pounds ($330,000) each and the travel ban would be lifted.

Officials had earlier said the ban had been lifted only from the Americans involved. The latest comments suggest the travel ban could also be lifted from Egyptians, Serbs, Norwegians and Germans involved in the case once they post bail.

Instructions have arrived to lift the travel ban on the accused Americans in the case of foreign financing to allow them to leave should they turn up to travel, one airport source said.

U.S. Secretary of State Hillary Clinton had said on Wednesday she expected a swift resolution to the row, which included slapping a travel ban on the son of the U.S. transportation secretary who works for an NGO in Egypt.

Sixteen of the 43 people charged are Americans. Seven of the Americans are in Egypt and some of those have sought refuge in the U.S. embassy, which had no comment on the case.

Egyptian politicians and analysts said ties with the United States would likely recover without major long-term damage. The relationship has been at the centre of Washington's Middle East policy for decades and has been strained at a sensitive point when Egypt makes the transition from army to civilian rule.

But NGO activists and diplomats said the saga could curtail NGO activities and impact on democratic freedoms.

The crisis over the NGOs is more about trimming Egyptian civil society in the coming future. The case poses a threat to Egyptian civil society, said Mohamed Mohie, head of an Egyptian NGO not involved in the case, the Human Development Society.

U.S. officials said the case also jeopardised $1.3 billion in annual military aid. That aid began flowing after Egypt made peace with Israel in 1979, while the relationship was bolstered over 30 years by Hosni Mubarak, ousted from office last year.

SWITCHING COURTS

Ibrahim, head of the Cairo Appeals Court who appoints judges to the case, told Reuters Wednesday that a decision had been taken to lift the travel ban.

Sources at Cairo international airport had said late on Wednesday that a U.S. military plane had arrived from Cyprus to take the Americans out. It was not clear when any of the Americans would leave or if they would take commercial flights.

Two of the groups involved, the National Democratic Institute (NDI) and the International Republican Institute (IRI), are loosely affiliated with the major U.S. political parties and one of the accused, IRI Egypt Director Sam LaHood, is the son of U.S. Transportation Secretary Ray LaHood.

Once the U.S. and other foreign NGO employees have left the country, and the media spotlight moves on, the threat remains over the Egyptian employees (of NGOs involved) as does a large question mark over the way that NGOs and civil society are seen in Egypt, said one Western diplomat.

He said the case may have been used, at least in part, to divert attention from a faltering economy.

Alongside charges that NGOs received foreign funds without Egypt's approval, the workers are also alleged to have carried out political activities unrelated to their work and accused of failing to obtain necessary operating licences.

A judicial source said charges would not be dropped.

There is a realisation on all sides that the relationship with the United States is extremely important. For the United States, Egypt is a pivotal country, said Mona Makram-Ebeid, a member of an advisory council appointed by the ruling army and also a professor at the American University in Cairo.

But this is a long-standing strategic alliance that I think the NGO case could not jeopardise, although we do not agree to any interference or any threat of removing the financial aid. She said the comments by U.S. officials that aid was at risk had angered many Egyptians.

The first session of the court that was initially hearing the case took place Sunday. It had been adjourned until April 26, but a new date will now be set since the case has been transferred to another court, the judge said.

(Additional reporting and writing by Edmund Blair; editing by Robert Woodward)