The top terrorism charge brought last month under a rarely used state law against two New York City immigrants in an alleged bomb plot has been dropped, authorities said Wednesday.

Ahmed Ferhani and Mohamed Mamdouh pleaded not guilty Wednesday to lesser state charges including criminal possession of a weapon as a terror crime in a scheme to blow up city synagogues.

But a grand jury evidently rejected the initial top charge against the pair, second-degree conspiracy as a terror crime, which carried the potential for life in prison. The top charges now, including the weapons count, are punishable by up to 32 years behind bars; the men also still face a less serious terror conspiracy count and hate crime counts.

"The charges have dropped a significant level in this case," Mamdouh's lawyer, Aaron Mysliwiec, said in court. Another defense attorney called the case "entrapment."

Ferhani and Mamdouh were arrested on May 11 on charges they wanted to strike a synagogue to avenge mistreatment of Muslims around the world. An undercover officer who investigated them reported that Ferhani wanted to become a martyr, and wiretap recordings caught the men calling Jews "rats" and other names.

Authorities say Ferhani, 26, was nabbed in a sting buying guns, ammunition and an inert hand grenade on a Manhattan block. Mamdouh, a 20-year-old American citizen of Moroccan descent, was picked up a few blocks away.

Police Commissioner Raymond Kelly and District Attorney Cyrus R. Vance Jr. stressed Wednesday that the remaining charges still accuse the men of posing a legitimate threat to city's Jewish community.

"I'm not certain what happened in the grand jury, but we'll accept the fact that the possible sentence is 32 years," Kelly told reporters.

In a statement on Wednesday, Vance said the indictment demonstrated that "threats to the safety of New Yorkers will be addressed swiftly and aggressively by this office and our partners in the (New York Police Department)."

The arrests were announced last month at a City Hall news conference where Kelly and Vance said they took the unusual step of prosecuting at the state level _ using an obscure terrorism law passed shortly after the Sept. 11, 2001, attacks _ after the FBI was made aware of the investigation but decided not to get involved.

The FBI, a central player in past terror investigations, has declined comment.

But a law enforcement official, who wasn't authorized to speak publicly and spoke on condition of anonymity, has told The Associated Press that the FBI had reservations about how the probe was conducted and concluded the allegations weren't worthy of a federal terrorism case.

"This is a political case, brought by political people, for their own political purposes," Elizabeth Fink, a lawyer for Ferhani, said outside court.

Ferhani, who is unemployed, moved to the U.S. in 1995 from war-torn Algeria with his parents and claimed asylum, authorities said. He had been granted permanent resident status but is facing deportation.

Mamdouh, who is of Moroccan descent, immigrated with his family in 1999, officials said. His parents are now local business owners, a prior attorney said.

The defendants lived blocks away from each other in Queens.

"You will see that this case is bogus. ... It's total entrapment." Fink said, adding that Ferhani's intentions were "absolutely not" terrorism.

"The truth here is that our client has a significant psychological problem," she said.

His lawyers didn't specify the mental illness from which they said he suffered, but they said it was lifelong.

The defendants remain held without bail and are due back in court Sept. 20. They appeared in orange jail jumpsuits and said nothing except "not guilty," during the brief hearing.

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Associated Press writers Colleen Long and Tom Hays contributed to this report.