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The federal government can continue to fund embryonic stem cell research, a U.S. district judge ruled Wednesday.

The decision from Judge Royce C. Lamberth in Washington, D.C., threw out a 2009 lawsuit challenging an Obama administration policy that expanded funding for the controversial research, which had been limited under President George W. Bush. The plaintiffs — researchers Theresa Deisher of AVM Biotechnology in Seattle and Dr. James Sherley of the Boston Biomedical Research Institute — argued that the policy ran afoul of a federal law known as the Dickey-Wicker Amendment, which prohibits government funding of research that involves the destruction of embryos.

At first, Judge Lamberth agreed with them, ordering an injunction in August 2010 to stop the research while the case continued.

Funding for the work was halted, stoking uncertainty for scientists. Many worried that not knowing what backing would be available would have a chilling effect on studies aimed at understanding and possibly finding cures for a variety of common conditions, including Alzheimer's disease and spinal cord injuries.

But the following month, an appeals court panel issued an...