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The crowd of some 500 people who had gathered outside the court in the federal capital Putrajaya knew it was their hero's last chance for freedom. If this appeal was rejected, Anwar Ibrahim, Malaysia's former Deputy Prime Minister, would have to serve out his nine-year sentence for a sodomy conviction and be forced to stay in jail until at least 2009. Xavier Jayakumar, a 50-year-old dentist and opposition-party member, had attended every one of more than a dozen such appeals and hearings, all of which had been dismissed. Having been disappointed so many times, he, like many in the crowd, was skeptical of the rumors that Anwar would finally be released on the very day—Sept. 2—on which he had been sacked six years ago.

Then, at 11:04 a.m., Anwar aide Mohamad Ezam Mohamad Nor, cell phone in hand, a broad smile on his face, climbed onto the topmost step leading to the courtroom. He had just received a text message from inside, he told the crowd, declaring: "I'm very happy to announce that our battle to free Anwar is successful." Ezam continued speaking, but his voice was drowned out by cheers and screams. People hugged one another. Many, like Jayakumar, were openly weeping. "It's unbelievable," Jayakumar said, repeatedly embracing his daughter, who had accompanied her father to each failed previous hearing. "I can't believe they've really done it."

Inside the courtroom, Anwar at first showed no emotion when Judge Abdul Hamid Mohamad of the three-man Federal Court, Malaysia's highest judicial body, read out the words that would make him a free man. Only when the judge was done with the verdict—the crux of which was that the key witness against Anwar on the sodomy charge was not credible—and when the roar of the crowd outside could be heard did Anwar smile and raise his hand. "Your honors," Anwar told the judges, who had acquitted him 2-1, "thank you. May God bless you." As the news began to filter out, cars honked their horns. Two newspapers produced special editions devoted entirely to the release. Because a Chinese-language broadsheet was the first off the presses, the paper was snapped up by many ethnic Malays, who could be seen standing on street corners, unable to read the characters but admiring the huge color photographs of Anwar emerging from the courtroom. Talking to TIME later, Anwar again expressed his gratitude for the upholding of his appeal, but this time he thanked not the judges but Abdullah Ahmad Badawi, Malaysia's Prime Minister. "Knowing the way the institutions have been controlled by the executive," he said, "I don't think a release would have been possible unless the Prime Minister had made it clear he had no intention of interfering [with the judiciary]."

Anwar may have been behind bars for six years, but he is clearly aware his release takes place amid a climate of change in Malaysia—change for which he himself fought in the past. Since succeeding Mahathir Mohamad as Prime Minister last year, Abdullah has quickly put his own stamp on the country. In stark contrast to Mahathir's bare-knuckle ruling style, he governs with a light touch—a kinder, gentler leader trying to forge a kinder, gentler Malaysia. Abdullah is signaling that his goal for Malaysia is not just economic progress above all else, as Mahathir's seemed to be, but also clean government and the establishment of strong and independent civil institutions. In recent months, the 64-year-old Prime Minister has canceled or renegotiated government contracts for big infrastructure projects handed to once favored businessmen, the anticorruption agency has announced a series of high-profile prosecutions of senior corporate and even political figures, and a high-level commission has been set up to examine claims of police brutality and corruption. (Critics note, however, that there have been no new initiatives since Abdullah's general-election win in March.) Says Musa Hitam, a former Deputy Prime Minister: "Notwithstanding it was a judicial decision, the release is seen as a major demonstration of the mood of the new administration and proof that liberalization will continue."

With Anwar now out of jail, a wounded nation can also finally begin to heal itself. The court verdict does more than just set Anwar free. The onetime student leader was one of the brightest and most charismatic politicians Malaysia had ever seen, an erudite thinker and an electrifying speaker whose message of equality, reform and an Islam that was moderate and modern resonated not only at home but in the West. Every Malaysian assumed that as Mahathir's deputy, he would be the next Prime Minister. When Mahathir sacked Anwar in 1998 for what he claimed was sexual misconduct and had him arrested, the country was shocked. Angered by the way Anwar had been treated, his many supporters took to the streets, sparking the worst unrest in Malaysia since race riots in 1969. Indeed, in 1999, in the first general elections after Anwar's incarceration, Mahathir's political party, the United Malays National Organization (UMNO), though still victorious, had its share of the Malay vote slip to less than 50% for the first time. With Anwar's sodomy conviction quashed, this issue, at least, no longer divides the country. "While Anwar could understandably be disgruntled about what happened to him, those who were responsible for his predicament in the first place are no longer in power," notes Abdul Razak Baginda, who heads the Malaysian Strategic Research Center. "It is time to forgive and forget, and to make sure Malaysia continues on the road of reform."

What role will Anwar play in this new Malaysia? His first hours out of jail were spent savoring being a free man again, among family, friends and fans. Outside his house in Kuala Lumpur's upscale neighborhood of Damansara Heights, hundreds of ordinary Malaysians crowded the streets, craned at the windows or patiently lined up for the chance of a brief handshake. Familiar opposition figures could be seen pushing through the crowds to gain admittance. Hawkers kept the crowds happy with servings of noodles and fruit.

But the years in prison have taken their toll on Anwar. Instead of the vital figure he once was, Anwar, now 57, is wan and drawn, unable to walk unassisted, his stockinged feet propped up on cushions piled up on a dining-room chair, his neck and waist encased in heavy orthopedic braces to minimize the pain caused by spinal damage he attributes to a beating in prison. When Anwar speaks, the passionate, sometimes rabble-rousing, tone of his pre-prison days is gone. Instead, his voice is hoarse with exhaustion, so soft as sometimes to be barely audible.

Still, despite Anwar's physical weakness, it didn't take him long to start discussing politics. He is barred from standing for office until 2008 because of a separate conviction on corruption—a conviction that his lawyers intend to ask the Federal Court to review, even though it has already dismissed his appeal. But Anwar told TIME that he was committed to pursuing the "agenda for reform" that he formulated after his dismissal—which centered on eliminating what he had then claimed was pervasive corruption and cronyism and the emasculation of civil institutions such as the judiciary. Nor would he rule out a reconciliation with UMNO, from which he was expelled after his 1998 arrest: "I am prepared to negotiate with any parties in my commitment to reform."

Opposition groups seem eager to recruit Anwar, hoping that his charisma can work the same magic for them as it once did for UMNO. "We have fought long and hard for Anwar's release, and we are overjoyed," says Nasharuddin Mat Isa, secretary-general of the Islamic Party. "He must get better and come back to lead the opposition coalition. We want him to continue to fight for the truth alongside us."

But that may not be the best political strategy for Anwar himself. Though the opposition controls two Malaysian states, it's hard to imagine that it will ever run the country. If Anwar wants to be in government again and have any chance of one day getting the top job, he has to rejoin UMNO, which has a tradition of forgiving its rebels—Mahathir himself was kicked out of UMNO in 1969 but was rehabilitated after two years.

Whatever Anwar decides, he is for the foreseeable future little threat to Abdullah—whether from outside UMNO or within it. The Prime Minister's campaigns against corruption and cronyism have proved popular with voters. In March Abdullah led his National Front coalition to one of its most resounding general-election victories in decades. That performance only served to underline how much has changed in Malaysia since Anwar was jailed in 1998. Then the economy was mired in recession, and for many months the streets of downtown Kuala Lumpur were filled with tear gas as thousands of pro-Anwar demonstrators called for Mahathir's ouster. Today Kuala Lumpur's streets are full of spanking new cars, and the protests are a dim memory. The economy, which was well on the road to robust recovery before Mahathir left office, is humming along—exports rose 29% in the second quarter of the year—with growth seemingly back on the smoothly rising path the country enjoyed for decades before the 1997 Asian financial crisis. The irony is that Anwar's release further buoys Abdullah. "He will be seen as the person who united the Malays," says political scientist Charles Santiago "It's an absolute win-win situation for him."

For now, Anwar and his family stress that his priority is to get well. On Saturday, two days after he was released, Anwar was to fly with his wife and son to a specialist back clinic in Germany, where he will undergo treatment not just for his back but also for recurrent kidney and leg ailments. As for Mahathir, Anwar says he bears him no grudge, but it's clear there's still plenty of bad blood between the two. Mahathir told reporters that he was "mildly surprised" when he heard about Anwar's release, but insisted "I'm not going to lose any sleep. My conscience is clear. I'm convinced that what I know is right. I still believe he's guilty." Anwar told TIME: "I am amazed he has remained so unrepentant against all arguments, which means his views are obsolete. And I have been advised, and I concur with that advice, that it is best to ignore him. After all Malaysians have ignored him, including the present Prime Minister. Otherwise I wouldn't have been released. Had Mahathir been taken seriously, I would still be in prison."

Anwar Ibrahim can never regain his lost years. However, though his political career was snuffed out in its prime, his health damaged and his reputation sullied, Anwar seemed never to grow bitter—and never lost hope. He says that in the six years he spent in his jail cell outside Kuala Lumpur, mostly in solitary confinement, his faith in himself, his family and supporters—and, indeed, in Malaysia's judicial system—did not waver. "I was always optimistic," Anwar told TIME, "but I didn't think it was going to be corrected so soon." Welcome to the new Malaysia.

• Simon Elegant | Kuala Lumpur
• After six years, populist reformer Anwar Ibrahim is released from prison. But will he be able to make a political comeback in what is a very different Malaysia?