A federal magistrate yesterday allowed a Saudi Arabian sheik, who is charged with illegally transporting a stolen $1.2 million emerald-and-diamond ring, to remain free on $25,000 bond, but forbade him to leave the country.

U.S. Magistrate Jean F. Dwyer, in setting bond for Sheik Allal al-Fassi during a hearing in federal court in Washington, ordered his passport held but allowed him to travel freely to Florida, where he maintains a residence.

Al-Fassi, 21, whose in-laws are members of the royal Saudi family, was arrested by FBI agents Christmas Eve at a Washington hotel after alleged attempts by al-Fassi to sell the 22.7-carat emerald to undercover FBI agents.

At yesterday's hearing, al-Fassi's attorney, former Watergate prosecutor Richard Ben-Veniste, argued that his client should be allowed to return to Saudi Arabia because of his involvement in developing an industrial park there.

Ben-Veniste said al-Fassi is in charge of procuring material throughout the world for the project. Al-Fassi's wife also is expecting their first child in February, Ben-Veniste said.

Assistant U.S. Attorney Noel Cramer, however, told Dwyer that the United States has no extradition treaty with Saudi Arabia and that if al-Fassi were allowed to leave the country, he might never return to face charges.

According to court documents, the ring, consisting of a single emerald surrounded by 16 diamonds, was stolen from the display cases of a Swiss jewelry salesman last April during a private showing of gems at the Florida home of al-Fassi's brother-in-law, Saudi Prince Turki Ben Abdul Azziz.

According to an FBI affidavit, al-Fassi was seeking to sell the ring for as much as $370,000 and at the time of his arrest told the agents that he had purchased the jewel for $500,000 a year earlier from a friend of the Saudi royal family in London.

Ben Veniste said over the weekend that al-Fassi was "invited" to this country by an FBI agent to "discuss some merchandise" in what Ben Veniste said was apparently part of an undercover "sting" operation.

However, an FBI spokesman, Ron Dervish, said yesterday that the bureau "was not conducting a sting operation," but was conducting a stolen property investigation. Yesterday Ben Veniste declined to discuss the case.

Law enforcement sources said yesterday that an informant led FBI agents to al-Fassi, who was arrested a few hours after arriving in Washington from Paris.

Al-Fassi, who faces a maximum penalty of 10 years in prison and a $10,000 fine on the charge of interstate transportation of stolen property, entered no plea yesterday. Dwyer scheduled a preliminary hearing in the case for Jan. 6 to determine whether there is probable cause to present the case to a grand jury.