The sexual assault case against Dominique Strauss-Kahn suffered a potentially fatal blow Friday as prosecutors admitted in court there were "substantial credibility issues" about the hotel maid who accused the former International Monetary Fund president.

Based on apparent falsehoods in the Guinean immigrant's 2004 asylum application, in her accounts to prosecutors of what she did after the alleged May rape attempt, and in her tax returns, the prosecution said it agreed to release Strauss-Kahn from onerous bail conditions.

Manhattan District Attorney Cyrus Vance Jr. said he had not yet decided to dismiss the charges and tried to put the best face on the bombshell revelations in a high-profile case that just weeks ago his office said was so strong that Strauss-Kahn would likely flee rather than face trial.

"Our prosecutors will continue their investigation into these alleged crimes, and will do so until we have uncovered all relevant facts," Vance said. " . . . In this case, as with every case, our commitment to the truth and the facts will govern how we proceed."

On Friday, Strauss-Kahn appeared in court with his wife, Anne Sinclair, but said nothing during a brief appearance. Judge Michael Obus released him on his own recognizance with no conditions. His passport remains surrendered, but he is free to go anywhere in the United States, officials said.

'Giant first step'

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Lawyers for Strauss-Kahn, who lost his status as a French presidential prospect and his IMF job as a result of the charges, said the district attorney's admissions were a "giant first step" toward exoneration and legal experts agreed the disclosures made the case untenable.

"It's devastating," said Gerald Lefcourt, a longtime Manhattan defense lawyer, citing Strauss-Kahn's claim that his encounter with the maid was consensual and the lack of eyewitnesses. "I don't think they could win it. It's a he-said, she-said case, and she has no credibility."

In a news conference outside Manhattan Supreme Court, the lawyer for the maid -- a 32-year-old single mother whose identity has not been disclosed -- said his client was "distraught" over the developments and firmly stands by her charges.

Ken Thompson, the lawyer, said her accusations are supported by strong forensic evidence -- including Strauss-Kahn's DNA on her, a torn shoulder ligament and bruising. He blasted Vance for using a scared victim's misstatements as an excuse for backing down from a tough case, and linked it to recent high-profile defeats in Vance's prosecution of two cops for rape and of construction workers for a fatal fire at the Deutsche Bank building.

"The Manhattan DA is afraid to try this case," Thompson said. "The DA has an obligation to stand up for this rape victim."

Strauss-Kahn was accused in May of attempting to rape the maid and forcing her to have oral sex when she came in to clean his suite at the Sofitel. Prosecutors opposed his release from jail, and a judge required him to post $1-million cash, a $5-million bond, pay for 24-hour guards and wear an ankle bracelet.

Previous statements false

In a letter to the court, prosecutors said they had learned since filing the case that the maid's statements that she had suffered rape and genital mutilation in Guinea were not borne out in her sworn asylum application, which claimed political persecution instead.

She told them she had been told to make up the political persecution story in 2004 by an immigration adviser. She said she had been raped, the letter said, but admitted that her initial statements to prosecutors about a gang rape were made up.

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Prosecutors also said the maid initially told them that she reported the alleged sexual assault by Strauss-Kahn to a supervisor almost immediately after it happened, but they learned that she cleaned another suite after leaving his room and before making a report. The letter also said she had been "untruthful" about other matters of "history, background, present circumstances and personal relationships."

Those matters included, an official said, a recorded phone call she had discussing the potential benefits of pursuing Strauss-Kahn with a friend jailed on drug charges. Thompson said his client made "mistakes" out of fear of being deported or fired, but said she voluntarily disclosed the discrepancies -- an assertion prosecutors said was partly true. He said her description of the attack never changed.

"We believe the district attorney is laying a foundation to dismiss this case," Thompson said. "They agreed to let Dominique Strauss-Kahn freely roam the streets . . . knowing full well that the victim to this very day maintains that he sexually assaulted her, and knowing that the forensic evidence shows it."

"This office has never shied away from tough cases," responded Daniel R. Alonso, Vance's top deputy.

Strauss-Kahn's next court appearance is July 18.