The decision, which shifts the cases to Bahrain’s highest appeals court, was seen as a victory for supporters of rights activist Abdulhadi al-Khawaja and other opposition figures sentenced last year under martial law-style rules imposed by Bahrain’s rulers.

But there appeared no immediate possibility for the release of the most high-profile members of the group, which includes some of the main figures in protests by Bahrain’s majority Shiites seeking to break the near monopoly on power held by the Western-backed Sunni dynasty.

One of those convicted, Alhur al-Sumaikh, had his two-year sentence reduced to six months by the court Monday and was released because of time served, family members said.

At least 50 people have been killed in unrest since February 2011 in the strategic kingdom, home to the U.S. Navy’s 5th Fleet. Al-Khawaja’s nearly three-month hunger strike has become the latest rallying point for the demonstrations.

The official Bahrain News Agency described the appeals process for al-Khawaja as practically the same as a new trial.

“The court reconsiders the proceedings from the beginning and listens to the witnesses and the prosecution and defense arguments,” it said.

So, the Grand Prix in Bahrain is over. The teams have packed up and the circus has moved on. They have a left a small nation feeling bewildered. Bewildered at the level of ignorance about what is really happening here, at the level of animosity and bile, at the media bias. And bewildered that so many in the UK, a long-standing friend and ally for two centuries, could so readily swallow everything opposition groups and activists were saying.

“Beneath a facade of normalisation, Bahrain is sliding towards another dangerous eruption of violence,” the international think tank said, urging the government in Manama to heed to calls for reform. “The government acts as if partial implementation of recommendations from the November 2011 Independent Commission of Inquiry… will suffice to restore tranquillity, but there is every reason to believe it is wrong.” The commission probed last year’s month-long Shia-led democracy protests and found that police used “excessive force” and tortured detainees in the crackdown that left 35 people dead, including five from torture. The Shia Muslim-majority kingdom of Bahrain is ruled by a Sunni dynasty.

King Hamad has pledged to press on with political reforms, in line with the commission’s recommendations amid criticism from UN rights bodies and international organisations that Manama has not lived up to expectations.

Demonstrations in Shia villages have increased in recent weeks, namely over the fate of a jailed activist who has been on a hunger strike for two months. Abdulhadi al-Khawaja was sentenced to life in jail with other opposition activists over an alleged plot to topple the monarchy during last year’s protests. He began a hunger strike on the night of February 8-9.

At the same time activists have called for protests to coincide with the Bahrain Grand Prix due to be held on Sunday. The ICG said hosting the event is one of “two potential time bombs” — the other being Khawaja’s fate — and spoke of “internal disagreements over the wisdom of proceeding” with the race.

“On 8 April, the Coalition of the Youth of the February 14 Revolution, an umbrella for an array of opposition groups that commands the loyalty of Shia neighbourhoods, declared that it would not accept blame for ‘any violent reaction’ during the event,” said the ICG.

He was convicted by a special security court in June of participating in efforts to overthrow the ruling dynasty. The activist has been on hunger strike for more than 50 days. He has been refusing food since Feb 8. Last week, Amnesty International urged Bahrain to free him because of fears he could die.

Lawyer Mohammed al-Jaishi said prior yesterday’s session in Bahrain’s Court of Cassation that he would appeal al-Khawaja’s sentence and his conviction in the special security court, which was set up after the country imposed martial law last March to quell the unrest.

The Court of Cassation is Bahrain’s top civilian court of appeals. The special security court, where protest-related trials were held behind closed doors with military prosecutors and judges, was abolished in November after being criticized by international investigators. Bahrain lifted martial law in June.

Al-Khawaja is one of seven opposition figures who have been sentenced to life imprisonment in the tribunal. Hundreds of other Bahrainis including protesters, activists, athletes and Shiite professionals such as doctors and nurses have been tried in the court. Dozens were jailed after being convicted of anti-state crimes, including treating injured protesters during the unrest.

Al-Khawaja, 52, is a former Middle East and North Africa director of Frontline Defenders Rights organization. He has also documented human rights abuses in Bahrain for Amnesty International and Human Rights Watch.

Al-Khawaja, who is married and has four daughters, is also a citizen of Denmark, where he lived in exile for decades. He returned to Bahrain after the government announced a general amnesty in 2001.

The Danish government has closely followed al-Khawaja’s case. Last year Denmark’s ambassador to Saudi Arabia attended court hearings in Bahrain. Danish Foreign Minister Villy Soevndal earlier this month raised the issue with his Bahraini counterpart, Khaled al-Khalifa, and asked that al-Khawaja either be released or be tried before a civilian court.

The sharia-compliant bank hopes the Chapter 11 filing will protect the company’s $3.6bn in global assets from any legal challenge from hedge funds, allowing the Manama-based institution to continue restructuring talks with a group of lenders led by the Royal Bank of Scotland.

Atif Abdulmalik, chief executive of Arcapita, blamed “certain non-bank creditors” for derailing attempts to negotiate a three-year loan extension before the March 28 maturity date.

“The filings offer Arcapita the necessary protection it needs to complete productive negotiations with all parties,” he said.

Hedge funds met with the central bank and Arcapita last week, with one calling for repayment in full to drop opposition to the restructuring plan offered by Arcapita to a coordinating committee of banks, according to people familiar with the situation.

Arcapita appears willing to accept the impact on its reputation of filing for Chapter 11 protection as it tries to build a legal firewall around assets that may have been targeted by hedge funds in the event of a default.

The bank, which has offices and assets in the US, said it had “a worldwide injunction” against “enforcement actions”.

The move comes only weeks after US-based hedge fund Monarch Alternative Capital won a UK court case for the recovery of $45.5m in debts from ship overhaul company Drydocks World after the Dubai government-owned entity defaulted on about $2.2bn last summer.

Bahrain’s central bank, Arcapita’s biggest creditor at $255m, said it had noted Arcapita’s decision to file for Chapter 11 in the US alongside a provisional liquidation request in the Cayman Islands.

The filing mentions three hedge-fund creditors, including Davidson Kempner, a member of the creditors’ co-ordination committee of lenders, which is owed $50m. Other hedge-fund creditors include Fortelus, with $88.8m, and VR Global Partners with $75m.

People familiar with some of the hedge funds say a legal challenge against the jurisdiction of the US courts could be made.

The group has put Bahrain on its enemies list, citing a news blackout and harassment of bloggers in its attempts to quell a yearlong rebellion against the country’s monarchy.

Meanwhile, it has dropped Libya from its second-tier list of countries under surveillance after a revolt there that toppled Moammar Gadhafi.

The enemies list contains countries that are well known for blocking Internet content, like China, Myanmar and North Korea. But the list of those under surveillance contains some surprises like Australia and France.

The project will meet the costs of training the university graduates. Chaired by Deputy Premier Shaikh Mohammed bin Mubarak Al Khalifa, the weekly Cabinet meeting approved the project as well as training programmes and budget following a memo submitted by Labour Minister Jameel Humaidan. The government will step up efforts to set the national economy back in motion and spur growth. It charged the ministerial committee for financial and economic affairs to submit a report to the Cabinet, suggesting necessary recommendations.

It has been given approval to seek assistance of international expertise to this end. The session followed up the implementation of recommendations in the Bahrain Independent Commission of Inquiry (BICI) Report at different ministries and government departments. Shaikh Mohammed, also head of a government task force, gave an update on co-ordination with the National Commissions charged with implementing the (BICI) recommendations. He lauded the panel, chaired by Shura Council president Ali Saleh Al Saleh, for co-operating constructively with the government to fulfil its duties. The session reaffirmed its resolve to remove all obstacles the execution of urban projects. A committee made up of officials representing finance, works and municipal and urban planning affairs ministries has been tasked to study the situation of urban projects.

The panel has also been charged to find viable alternatives ensuring the completion of all projects to avert any repercussions or negative misinterpretation which have nothing to do with reality. Municipalities could soon be given the authority to immediately stop unlicensed construction works. A memo submitted by Municipalities and Urban Planning Affairs Minister Dr. Juma Al Ka’abi was referred to the legal affairs committee for more scrutiny. The session gave directives to continue developing the oil and gas sector and their vital facilities. Energy Minister Dr. Abdulhussain Mirza submitted a report detailing record figures achieved last year at the Bahrain Oil Field, the refinery and other petroleum companies.

A total of 120 industrial projects were licensed last year, pumping up to BD243.5 million into the national economy, said a report submitted by Industry and Commerce Minister Dr. Hassan Fakhro. The session approved a proposal to conduct a study into the economic, social and environmental impact of subsidised oil and gas. A proposal to set up a sport centre for mentally-retarded people also received the go-ahead. The session has also approved a proposal to recruit Bahrainis at ministries and government departments on a temporary basis.

“I was watching the situation from the UAE and we kept a close eye on outflows and was surprised just how minimal they were,” he said. ”We thought there would be an outflow of capital but the needle did not move. ”This is a reflection of where Bahrain stands in the Middle East. It has the best regulatory system in the region and an amazing level of unspoken confidence and we need to remind people of its success.

“The rest of the region and further afield can learn from how Bahrain’s financial system stood up to its problem. People should give Bahrain some credit. It has a 100 years of banking history and that has not changed. The black clouds will go away. Bahrain may be less flash than some places – but it has more substance.” He was speaking at a media forum organised by the Bahrain Association of Banks (BAB).

“Despite the problems Bahrain faced we did not see any deflation in the financial sector in 2011,” said BAB chairman Abdulkarim Bucheery, who is also chief executive of BBK. ”It is too early to tell how 2012 will go but there is optimism in the market.” He said the industry enjoyed strong liquidity and the banks were ready to lend if they could find the right projects.

Now that the anniversary of the unrest had past, he said it would help the sector and rating agencies could remove the negative rating on Bahrain. ”The situation in Bahrain is much better than people expected,” he said. ”A couple of banks left but only one of them was connected to unrest. There was no flight of capital or jobs. ”A lot of people expected institutions would leave and staff would be cut but none of this happened.”

Riot police used tear gas to stop demonstrators from reaching the site over the weekend.

Violence in areas outside the capital has increased substantially in recent weeks, with a growing number of activists throwing stones and fire bombs at security officers and burning tires to block roads.

The government and the main opposition al-Wefaq party have condemned the violence, but radical figures from both sides of the conflict appear to be inciting further attacks.

Most pro-reform protesters in Bahrain are Shi’ite Muslims. Shi’ites make up nearly two-thirds of the country’s population of 1.2 million and say they are marginalized by the ruling Sunni minority.

According to Abdul-Aziz bin Mubarak Al-Khalifa, an international media adviser at Bahrain’s Information Affairs Authority, the prolonged unrest is deepening divisions between the two communities.

“We have seen an emergence of a political Sunni coalition, who have also become now very vocal, so now we’re actually dealing with two camps that are quite polarized,” said Khalifa.

A Manama resident, who would speak only on condition of anonymity, described how many Sunnis have come to regard their Shi’ite compatriots.

“We don’t want to live with them anymore. We don’t want to sit with them. We don’t want to work with them.”

Some analysts blame slow political reform for the growing sectarian rift.

The Bahrain Independent Commission on Inquiry issued a report in November that provided the government with a number of recommendations to help kick-start a national reconciliation process.

However, Kristian Coates-Ulrichsen, a research fellow at the London School of Economics, said the government’s failure to implement the suggestions resulted in a wasted opportunity to regain some middle ground in the increasingly polarized conflict.

“The danger now in Bahrain is that it will become, more or less, a frozen conflict, as all sides will basically withdraw to their own hard-line positions,” said Coates-Ulrichsen. “So I think the prognosis, at least in the short term, is quite gloomy because the government continues to show little interest in any meaningful reform.”

Speaking in Manama last week, U.S. Assistant Secretary of State for Democracy, Human Rights and Labor Michael Posner underscored America’s strong relationship with Bahrain.

The U.S. Navy’s Fifth Fleet is based in the kingdom and is seen as vital to counterweight Iranian influence in the oil-rich Persian Gulf.
During his speech, Posner encouraged all sides in Bahrain to show respect to one another in the run-up to February 14.

“We call on all Bahraini citizens to refrain from violence. We also urge the government to permit peaceful demonstrations and the right of all citizens to express their political views,” said Posner.