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Entangled in a row over Bern's treatment of Libyan leader Moamer Kadhafi's son Hannibal, Hamdani and fellow Swiss businessman Max Goeldi were in November sentenced to 16-month jail terms by a lower court for overstaying their visas.

They have been holed up for almost the past year and a half at the Swiss embassy in Tripoli since the Hannibal affair blew up in July 2008, and the pair also face trial on charges of suspected illegal business activities.

"The appeal court acquitted Rashid Hamdani and overturned his prison term for overstaying" the visa, lawyer Salah Zahaf told AFP.

Goeldi has likewise appealed against his jail sentence and appeared in court last Thursday for the first time since the case began, as both men had feared they might be arrested on leaving the embassy.

A ruling on Goeldi's appeal is due on Thursday.

On January 24, Hamdani appeared in court after Zahaf said the Kadhafi Foundation run by the Libyan leader's son Seif al-Islam provided guarantees he would not be arrested.

A Western diplomat in Tripoli, speaking on condition of anonymity, called Hamdani's successful appeal "a first step on the part of the Libyans towards the Swiss."

If Goeldi also wins his February 4 appeal, "the judiciary's decisions could mean a lifting of the ban on the two men leaving Libya," the diplomat added.

Emmanuel Altit, a French defence lawyer for the pair, told AFP he did not wish to comment for now.

Hamdani on Sunday appeared in court for a separate hearing on the business dealings case, according to Zahaf, who said its verdict was due on February 7, while Goeldi's verdict is expected on February 6.

In Switzerland, a foreign ministry spokesman confirmed that the jail term against Hamdani had been dropped, but also declined to comment on the decision.

Hamdani, who works for a small construction firm, and Goeldi, a senior manager at the Swedish-Swiss engineering giant ABB, were detained in mid-July 2008, shortly after Hannibal Kadhafi and his wife were briefly arrested in Geneva when two hotel servants complained he had mistreated them.

The servants later dropped the allegations, but Goeldi and Hamdani have not been allowed to leave Libya since July 2008.

Legal proceedings against the two in both sets of trials have been repeatedly delayed as both Goeldi and Hamdani had previously failed to show up in court.

Tripoli initially denied the Swiss businessmen exit visas and charged them with the immigration offences. However, they were later released on bail and allowed to stay at the embassy.

The businessmen had been due to return to Switzerland last September 6, but two days earlier daily newspaper La Tribune de Geneve printed pictures of Hannibal Kadhafi looking dishevelled while in police custody.

Swiss President Hans-Rudolf Merz, who in August had ruffled political feathers at home by apologising for the arrest of the Kadhafis, said the publication of the photographs was seen in Tripoli "as a humiliation."

The UN's High Commissioner for Human Rights, Navi Pillay, has called for the release of Goeldi and Hamdani, describing their treatment as "unfair."