The federal magistrate on Friday ordered bond set at $150,000 for Nicholas Bickle of San Diego, but he later granted prosecutors' request to stay the decision while they appeal.
Magistrate William Gallo said he was willing to take a chance on Bickle after a Navy commander and other officers appeared in court to support the decorated war hero.
Prosecutors argued Bickle is a dangerous flight risk and should be held without bail.
Bickle is accused of conspiring with a Colorado man and a Las Vegas associate to smuggle and sell rifles and handguns to an undercover federal agent. The agent claimed they would be shipped to Mexico.
According to a criminal complaint, Bickle smuggled 80 AK-47 weapons from Iraq or Afghanistan, including factory-made 7.62 mm Iraqi machine guns that would be difficult or impossible to trace. Other weapons included Ruger handguns of the type used by U.S. military police officers.