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Government financing of human embryonic stem cell research can continue, a federal appeals court ruled Friday. The decision was an important victory for the Obama administration in a legal battle that is far from over.

The 2-to-1 ruling, by a panel of judges from the United States Court of Appeals for the District of Columbia Circuit, blocks a lower-court decision last August holding that such research is illegal under a law that bans public spending on research in which human embryos are damaged or destroyed.

The stem cells are derived from donated human embryos left over from fertility treatments; the embryos are destroyed in the process, leading some opponents of abortion to liken the research to murder.

But the appellate court said Friday that because the law is written in the present tense, “it does not extend to past actions.”

Samuel B. Casey, a lawyer for two scientists who sued the government to stop paying for research into human embryonic stem cells, said that he was “a little disappointed” but also pleased that the appeals court kept his suit alive...