Commission Ordered for Expelled Gay Midshipman : Military: Three-judge federal appeals court panel also orders a diploma for the man, who was ousted from Naval Academy six weeks before graduation.

A federal appeals court Tuesday ordered the Pentagon to commission a midshipman who was expelled from the U.S. Naval Academy because he acknowledged that he is homosexual.

In a unanimous decision that may lead to a Supreme Court test of the Clinton Administration’s gays-in-the-military policy, a three-judge panel of the U.S. Circuit Court of Appeals here ordered the Navy to grant a diploma to Joseph C. Steffan and to place him in the ranks of Navy officers.

Steffan, 29, sued after being forced to resign from the Annapolis, Md., academy just six weeks before graduating in 1987. He had acknowledged his homosexuality under questioning by school officials, who said they learned he had told another student.

Steffan ranked in the top 10% of his class and there was no evidence that he ever engaged in any homosexual conduct.

The judges’ ruling is the first by an appellate court since the Administration adopted its new policy on homosexuals in the military last summer.

That policy, dubbed “don’t ask, don’t tell,” changes a 50-year-old policy by prohibiting military officials from asking about a recruit’s sexual orientation or investigating assertions that a person is gay. But gay service members who voluntarily reveal their orientation or are caught engaging in homosexual conduct may still face dismissal.

If the government appeals the ruling, the issue before the high court likely will involve dismissals stemming from such voluntary statements.

Steffan acknowledged his homosexuality when asked by officials to state his orientation “on his honor” as a midshipman.

The court upheld Steffan’s contention that this discharge “based solely on his homosexual orientation” violates the Constitution’s guarantee of equal protection, which the court said “forbids the government to disadvantage a class based solely upon irrational prejudice.”

Beatrice Dohrn, legal director of Lambda Legal Defense and Education Fund, which represented Steffan, called the court ruling “an important victory for . . . all gay and lesbian Americans because it establishes the proposition that other people’s prejudice against us should not be the basis” for a government policy.

Pentagon spokeswoman Kathleen DeLaski, asked if Steffan will be reinstated, told reporters that the decision will depend on whether the case is appealed. DeLaski and Justice Department officials said they were studying the possibility of an appeal.

The government could ask the full appeals court to review the Steffan case or could appeal the decision to the Supreme Court.

The government has appealed a ruling in a similar case, involving gay sailor Keith Meinhold. He was reinstated under an order by U.S. District Judge Terry Hatter in Los Angeles, but that ruling is under review by the U.S. 9th Circuit Court of Appeals in San Francisco.

In the Steffan case, Chief Judge Abner Mikva wrote for the court that the government cannot act against a group of people based solely on “irrational prejudice.” He said that “America’s hallmark has been to judge people by what they do and not by who they are.”

In a strongly worded opinion, Mikva said: “It is fundamentally unjust to abort a most promising military career solely because of a truthful confession of a sexual preference different from that of the majority, a preference untarnished by even a scintilla of misconduct.”

The opinion, in which Judges Patricia Wald and Harry Edwards concurred, said the government cannot presume that a gay service person will engage in misconduct based on such orientation.

All three judges, considered among the most liberal on the court, were appointed by former President Jimmy Carter.

Since 1989, more than 3,500 people have been discharged under the military’s regulations on homosexuality.