CHICAGO -- Interested inmates at Newton Correctional Facility in Iowa receive teaching material that declares: "Criminal behavior is a manifestation of an alienation between the self and God. Acceptance of God and Biblical principles results in cure through the power of the Holy Spirit. Transformation happens through an instantaneous miracle; it then builds the prisoner up with familiarity of the Bible."

Rooted in evangelical Christianity and supported by more than $1.5 million in public funds, the method of the rehabilitation program is clear enough. A key question is its constitutionality. A trio of appellate judges, including former Supreme Court Justice Sandra Day O'Connor, is reviewing a lower court's decision that the program violates the separation of church and state.

People on both sides of the dispute say the outcome could influence the future of President Bush's faith-based initiative, which links government and religious institutions in efforts to solve social problems.

"This puts into jeopardy not just faith-based nonprofits in a prison setting," said Mark Earley, president of Virginia-based Prison Fellowship Ministries, whose affiliate, the InnerChange Freedom Initiative, runs the Iowa program. "I think you'd see a precipitous drop in the number of faith-based organizations willing to provide services to governments."

Barry W. Lynn, executive director of Americans United for the Separation of Church and State, which sued to stop the program, said a courthouse defeat for InnerChange "could well be the death knell for these kinds of programs, whether they're funded by state or federal money."

"Americans," Lynn said, "can't be required to submit to any religious indoctrination to get benefits, whether those people are behind bars or on the outside."

U.S. District Judge Robert W. Pratt sided with Americans United, ruling last year that the Iowa program is "pervasively sectarian." He heard testimony from prisoners of other faiths who felt unwelcome in a program that gives advantages to inmates who accept the intensive religious teachings.

Inmates deemed to be making sufficient spiritual progress live in better conditions than the general population, inhabiting cells with wooden doors and using toilets that afford privacy, a jailhouse rarity. They have more access to relatives and outside visitors and can fulfill prison requirements more quickly.

While in the program, prisoners are expected to pray daily, attend worship services and religious gatherings, and participate in weekly revival meetings. Inmates of other religions are asked "to compromise, if not completely abandon, their faiths in order to participate," Pratt ruled, citing "a constant tension" with Roman Catholic inmates.

Pratt ordered InnerChange to close its operations and repay $1.5 million to the Iowa government and prisoners whose telephone surcharges helped fund the program. He said he was careful not to pass judgment on the beliefs of the staff or the effectiveness of the religious approach, although he said he had received no credible data on recidivism rates.

His central concern, Pratt wrote, was whether the program violates the Constitutional prohibition on government showing a preference for any religious denomination.

Iowa "hopes to cure recidivism through state-sponsored prayer and devotion," wrote Pratt, 59, a Clinton appointee. "While such spiritual and emotional 'rewiring' may be possible in the life of an individual and lower the risk of committing other crimes, it cannot be permissible to force taxpayers to fund such an enterprise under the Establishment Clause."

Prison Fellowship's attorneys and witnesses told the judge that the Iowa program, located at the prison about 35 miles from Des Moines, was strictly voluntary and open to inmates of all faiths. They noted that much of the money came from private sources and reported that state money paid only for secular aspects of the program.

Pratt ruled, however, that the overtly religious atmosphere is not "a secondary effect of the program -- it is the program." He noted that the cost of all telephone charges were billed to the state under "nonsectarian items," along with 82 percent of the local director's salary. So, too, were "Jesus is Lord" key chains.

Prison Fellowship, founded in 1976 by Watergate figure Charles Colson, runs six similar programs in Texas, Kansas, Minnesota and Arkansas, and expects to open one soon in Missouri. All are funded privately.

When Americans United filed suit, the programs in Kansas and Minnesota also took government money, but the prison group shifted them to private backing, Earley said, "just to reduce the litigation profile until things could be resolved."

Pratt's ruling is on hold pending appeal.

Among those supporting InnerChange is former attorney general John D. Ashcroft, who wrote shortly before this month's arguments before the 8th Circuit Court of Appeals in St. Louis that high recidivism rates prove that programs such as InnerChange, sometimes called IFI, are needed.

"Neither Judge Pratt nor Americans United offers a better way to stop the revolving door of prisons. They simply want to shut IFI down," Ashcroft wrote in the St. Louis Post Dispatch.

"Judge Pratt's opinion ties the hands of corrections officials who are trying to make our communities safer," Ashcroft wrote.

Anthony R. Picarello Jr., general counsel of the Becket Fund for Religious Liberty, argued the case on behalf of Prison Fellowship. He said that an affirmative ruling by the appellate panel or the Supreme Court -- particularly if the money must be repaid -- would deter faith-based organizations.

"We think Prison Fellowship did it right," Picarello said. "If at the end of the day the court agrees with them and not us, the way to resolve it is to make some clear rules about how to do it right, rather than banish and punish us."