The Department of Justice, which said it would retry a theft charge against an Army officer who once headed a top-secret counterintelligence unit, has dropped that effort.

In April, a U.S. Appeals Court panel in Richmond overturned the conviction of Lt. Col. Dale E. Duncan in February 1986 in Alexandria for fraudulently claiming expenses, saying the trial judge erroneously instructed the jury. The charges stemmed from a $796 airline ticket voucher.

Justice Department attorney Theodore S. Greenberg said the government would retry Duncan on one of the three charges, but shortly before the new trial was to start, the government said it did not wish to proceed, according to court records in Alexandria.

"It's a moral victory for Duncan," his attorney Thomas Buchanan said yesterday.

The action was the second court victory for Duncan. In March, an appeals court panel in Richmond ruled that the Army had illegally obtained his American Express credit card records, and ordered a hearing on damages for Duncan.

Duncan, who once headed the Annandale-based Business Security International, which was a cover for covert activities by the Army's special operations division, is serving a 10-year sentence in Fort Leavenworth, Kan., for his convictions in a 1986 Army court-martial.