Lotfi Raissi was on a running machine at his local gym in the suburbs west of London when he looked up to see footage of American Airlines Flight 11 crash into the World Trade Centre's North Tower.

Raissi, a 27-year-old Algerian pilot, could not have known that within days he would become the first person in the world to be arrested for the attacks in New York and the Pentagon, near Washington DC, on 11 September 2001.

After a raid on his home, he would be described as the "lead instructor" of the hijackers, responsible for training four pilots to fly planes into the Twin Towers and the Pentagon, and spend the next five months in Belmarsh high-security prison in south-east London awaiting extradition to the United States.

"It was all so fast, I couldn't really think," Raissi, now 35, recalls. "I just kept thinking: how does this happen to an innocent man?"

Jack Straw, the justice secretary, is expected to announce in the next few weeks whether the government will agree to Raissi's long-running battle for an official apology and compensation.

The decision ? a year after the court of appeal found evidence that law enforcement officials "circumvented" the law to keep Raissi in jail ? could have far-reaching consequences for how the UK deals with terror suspects wanted by foreign states.

An investigation by the Guardian has unravelled how Raissi, who was living in the UK to secure a European pilots' licence, was falsely accused in court of having links to the top ranks of al-Qaida. The role UK officials played in proceedings has been laid bare in previously unseen correspondence between the FBI and UK anti-terrorist officials in the days and weeks after the 9/11 attacks.

The FBI request

Four days after the attacks in America, the FBI sent a letter ? headed Twin Towers Bombing ? to the deputy head of the Metropolitan police's anti-terrorist branch requesting "all available information" on Raissi.

Agents were interested in Raissi because records showed he had trained at the same Arizona flight school ? and at about the same time ? as Hani Hanjour, the hijacker who piloted the plane that crashed into the Pentagon. It was a coincidence, but Raissi was probably among thousands of innocent people who were flagged by US intelligence service as it trawled for clues.

The letter contained a curious reference to an address book which, the FBI reminded the Met, officials in the UK had seized in an operation months earlier.

Sent via the US embassy, it was, however, worded cautiously, stating that Raissi "may" have been involved in 9/11 and asking officers to place him under discreet surveillance. In six pages, only one sentence included words that were capitalised, printed in bold and underlined: "The FBI requests that Raissi not be alerted to the US government's interests at this time." This line was taken to mean he should not be arrested.

Days after receiving the letter, the Met's anti-terrorist branch hauled Raissi from his bed in the quiet Berkshire village of Colnbrook, along with his then wife, Sonia, 25, a French dancer.

Hours before the raid, journalists had been tipped off that Raissi was on an FBI watchlist, so his arrest made headlines across the world as police briefed the media they had captured a 9/11-linked suspect ? and, some claimed, foiled a terrorist attack in the heart of London.

At Paddington Green police station, where Raissi was being questioned, the truth was far less dramatic. "What they found in me was a profile," Raissi said. "I am Algerian, I am Muslim, I am a pilot instructor and qualified in a Boeing 737. There was nothing else."

Police could not find sufficient evidence to charge Raissi, but a provisional request for his extradition was lodged by the US authorities, which charged him with fraudulently completing a pilot's licence form by not revealing he had undertaken knee surgery, a trivial allegation used for an ulterior purpose.

'Conspiracy to murder'

Sitting in the dock at Bow Street magistrates court for a bail hearing on 28 September 2001, Raissi listened as the Crown Prosecution Service (CPS) claimed he was partly responsible for 9/11. Arguing he should be refused bail, the prosecutor told the judge that the minor allegations about his licence application were only "holding charges".

Instead, the prosecutor, officially representing the US government, said the reason the US was seeking his extradition was that he had been identified as a "lead instructor" of the hijackers behind the 9/11 attacks, an allegation said to have been supported by telecommunications and video evidence.

The Guardian has obtained a CPS review of the Raissi case that considers the actions of its staff and reveals the source of the serious allegations for the first time.

Moments before the hearing, the prosecutor met two FBI agents outside court to be briefed about Raissi. "The agents informed the prosecutor that Mr Raissi must have been the lead instructor," the document states.

In court, the prosecutor said: "What we say is that Mr Raissi was, in fact, an instructor for four of the pilots responsible for the hijackings and the one we are particularly concerned about is the one that crashed into the Pentagon, Hani Hanjour. It is no secret that we are looking at charges of conspiracy to murder."

It was the opening salvo in what would be almost five months of court appearances at which the CPS would seek to keep Raissi incarcerated.

He claims to have been severely traumatised by his time in the high-security Belmarsh, where inmates and guards quickly became aware he was an FBI suspect for the 9/11 attacks.

After initially being placed on Belmarsh's AA wing ? the most secure unit and a relatively safe part of the prison ? Raissi was transferred to the general wing, where one prison guard claimed he was being "fed to the dogs". Raissi became known in the prison as "Bin Man", after Osama bin Laden, and was subjected to constant racial taunts and threats on his life. He was stabbed twice.

In court, claims that phone records linked him to the hijackers and that he had deliberately altered his personal flight book to conceal the hours he spent training Hanjour were proved false. Records from the Arizona flight school showed he was unlikely to have trained on the same day as Hanjour, let alone in the same plane.

A video the Met said showed Raissi with Hanjour turned out be innocuous footage of Raissi and his cousin.

Prosecutors introduced a new, crucial piece of evidence against Raissi. The claim would turn out to be false but, for months, it formed a central plank in the case, linking Raissi to an Algerian branch of the al-Qaida network.

The new evidence centred on the address book recovered during an anti-terrorist raid in Islington, north London, earlier that year. The CPS said it belonged to Abu Doha, a senior al-Qaida suspect. It contained a contact telephone number linked to an address used by Raissi in Phoenix, Arizona.

The Doha connection

The FBI described Doha as a dangerous and well-connected al-Qaida suspect. Known as "the doctor", Doha was believed to have had personal contact with Bin Laden at a training camp in Afghanistan and was said to be part of an Algerian terror cell that planned attacks in Europe.

The Doha connection proved damning for Raissi and was cited by judges as a reason he should remain in custody. But two months later, the CPS discovered the address book probably did not belong to Doha, but was the property of a man known as Abdelaziz, or Adam, Kermani. A regular at Finsbury Park mosque, north London, Kermani, 36, was a former flyweight boxer from Algeria who had lived in the UK since 1997. Kermani had been the tenant of the Islington council flat for four years.

In February 2001, after suspected Muslim extremists ? including, it is believed, Doha ? were seen visiting the flat, it was raided by police. Kermani was away, but was of so little concern that he was not even interview
ed about the raid, during which officers seized a number of his items including a blue address book, with his name and immigration number printed on the front.

The CPS has said it mistakenly claimed the address book belonged to Doha, relying on information it received from investigators. But the Met's anti-terrorist branch offered prosecutors "clarification" about the Raissi case and the ownership of the address book in a letter dated 13 December, a little over two months after he was arrested.

The officers told the CPS that, while "it has often been stated in court" that Raissi was linked to Doha via the address book, inquiries had established that the diary "may not have actually belonged to Doha, but more likely to a Mr Abdelaziz Kermani".

The next day, the CPS conceded in court that the address book was not found at Doha's home, but had been seized at Kermani's flat. But, crucially, rather than asking the judge to disregard the Doha connection as evidence that could no longer be relied upon, prosecutors did not withdraw the allegation that the address book proved a link between Raissi and Doha, maintaining the false connection with al-Qaida.

Days later, the FBI sent a memo to Scotland Yard in which it acknowledged that investigations had established the address book "belonged to Kermani, and not Abu Doha as originally thought."

Raissi was released on bail on 12 February, two months after the CPS had been told the address book was no longer thought to belong to Doha. A month later, a district judge threw out the extradition proceedings, noting he had received "no evidence at all" connecting Raissi to terrorism.

Seven years after his release, Raissi said he still hoped for justice. "I have always said that I have faith in British justice, and the court of appeal showed that I was right," he said. "I don't have much faith in British politicians and it is now for Jack Straw to prove me wrong."

Terror ordeal

• 11 September - The FBI begins the largest investigation in its history after al-Qaida terrorists hijack four commercial planes and kill almost 3,000 civilians.
• 17 September - FBI sends a letter to Scotland Yard's anti-terrorist branch revealing Lotfi Raissi attended the same flight school as 9/11 hijacker Hani Hanjour.
• 21 September - Scotland Yard arrests Raissi. After seven days, no charges are brought. However, the US and UK collude to produce a warrant based on trivial charges to justify extradition.
• 28 September - Raissi is remanded in custody. At later hearings, prosecutors say address book belonging to Algerian terror suspect Abu Doha proves Raissi is linked to senior al-Qaida figures.
• 13 December - Scotland Yard tells Crown Prosecution Service its position about ownership of the address book has changed.
• 12 February - CPS concedes in court that the link to Abu Doha has changed and Raissi is released after almost five months in prison.