The ruling put the spotlight back on the highly divisive issue of justice for the former leader -- and his top security officers -- in a country has been more focused on the political and economic turmoil that has engulfed the country for the past two years.
Mubarak, who is currently being held in a military hospital, will not walk free with Sunday's court decision-- he will remain in custody while under investigation in an unrelated case. The 84-year-old ex-president was reported last year to have been close to death, but his current state of health is unknown.
A small crowd of Mubarak loyalists in the courtroom erupted with applause and cheers after the ruling was read out. Holding portraits of the former president aloft, they broke into chants of "Long live justice." Another jubilant crowd later gathered outside the Nile-side hospital where Mubarak is being held in the Cairo district of Maadi, where they passed out candies to pedestrians and motorists.
The relatively small crowds paled in comparison to the immediate reaction to his conviction and sentencing in June, when thousands took to the streets, some in celebration and others in anger that he escaped the death penalty. Sunday's muted reaction could indicate that the fate of Egypt's ruler of nearly three decades may have in some ways been reduced to a political footnote in a country sagging under the weight of a crippling economic crisis and anxious over its future direction.
The court did not provide the reasoning for its ruling, but was expected to do so later. No date has been set for the retrial.
The ruling in favor of the appeal, however, had been widely expected. When Mubarak was convicted and handed a life sentence in June, that trial's presiding judge criticized the prosecution's case, saying it lacked concrete evidence and that nothing that it presented to the court proved that the protesters were killed by the police.
Mubarak's defense lawyers had argued that the former president did not know of the killings or realize the extent of the street protests. But an Egyptian fact-finding mission recently determined that he watched the uprising against him unfold through a live TV feed at his palace.
The mission's report could hold both political opportunities and dangers for Mubarak's successor, President Mohammed Morsi of the fundamentalist Muslim Brotherhood. A new Mubarak trial would be popular, since many Egyptians were angered he was convicted for failing to stop the killings, rather than ordering the crackdown that killed nearly 900 people.
But the report also implicates the military and security officials in the protesters' deaths. Any move to prosecute them could spark a backlash from the powerful police and others who still hold positions under Morsi's Islamist government at a time when the nation's new leader is struggling to assert his authority over a nation reeling from political upheaval.
In a retrial, the prosecution has the right to present new evidence, such as that reportedly unearthed by the fact-finding mission, which could lead the court to convict Mubarak of ordering the crackdown.
If convicted, Mubarak could face a life sentence or have it reduced. Under Egyptian law, a defendant cannot face a harsher sentence in a retrial, meaning the former leader cannot face the death penalty.
A new trial for Mubarak could further unsettle the nation at a perilous time.
Egypt is grappling with an ailing economy -- the pound's value is slipping against the U.S. dollar, foreign reserves are shrinking and tourism is in a deep slump. And politically, the country is deeply divided by the bitter rivalry between its Islamist rulers and their allies and an opposition led by liberals and secularists.
Clashes between the two sides have left at least 10 people killed and hundreds wounded last month.
The judge also ordered a retrial of Mubarak's former security chief, Habib el-Adly, convicted and sentenced to life in prison on the same charges.
He also ordered the retrial of six of el-Adly's top aides who were acquitted in the same trial. Five of them were found not guilty of involvement in the killing of the protesters, while one was acquitted of "gross negligence." No date was set for their retrial either.
It also granted the prosecution's request to overturn not-guilty verdicts on Mubarak, his two sons and an associate of the former president, Hussein Salem, on corruption charges. Salem was tried in absentia and remains at large to this day.
The six top police commanders held key positions at the Interior Ministry, which was led by el-Adly and which is in charge of the security forces. Their acquittal surprised many Egyptians who are still demanding retribution for the nearly 900 protesters killed during the 18-day uprising that culminated with Mubarak's ouster on Feb 11, 2011.
The prosecutors in the Mubarak trial complained that security agencies and the nation's top intelligence organization had not cooperated with their investigation, leaving them with little incriminating evidence against the defendants. During the trial, prosecutors focused their argument on the political responsibility of Mubarak and el-Adly.
Sunday's ruling came one day after a prosecutor placed a new detention order on Mubarak over gifts worth millions of Egyptian pounds he and other regime officials allegedly received from Egypt's top newspaper, Al-Ahram, as a show of loyalty while he was in power.
The public funds prosecutor ordered Mubarak held for 15 days pending the completion of the investigation. Mubarak was moved to a Cairo military hospital last month after slipping inside a prison bathroom and injuring himself.
Mubarak's sons, one-time heir apparent Gamal and businessman Alaa, are in prison while on being tried for alleged insider trading and using their influence to buy state land at a fraction of its market price.
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