The satellite, which was to be used in experiments to generate electricity, had been caught on a snagged power line, delaying its deployment on Tuesday.
The satellite was left dangling overnight after the tether jammed twice as it was being unwound from a spool in Atlantis' cargo bay.
Earlier, mission managers had been considering a spacewalk to enable astronauts on the Atlantis shuttle to try to free the jammed tether holding the satellite 750 feet above the craft.
Yesterday afternoon the astronauts reeled about 80 feet of the tether connecting the Italian Space Agency's satellite to the shuttle back in, then tried once again to unspool it.
Nasa had hoped that by unreeling the line more quickly they could free it.
The problems have forced the crew to abandon what was potentially the most fraught experiment of the mission. The astronauts hoped to generate electricity by dragging the Teflon and copper tether across the Earth's magnetic field at 17,500mph. This was expected to produce around 5,000 volts, testing the possibility of generating electricity in space to power future satellites.
Twice during attempts to unreel the satellite it swung over the shuttle on its tether. The crew had to fire the shuttle's jets to steady the tether and satellite to stop it wrapping itself around the spacecraft. As a last resort, the crew could have fired small explosives to cut the satellite loose.
The first attempt to unreel the tether was thwarted when a power cable failed. The crew tried to disconnect it 11 times, before shaking it free by firing the shuttle's own jets.
The failed experiment teamed the United States and Italy in a study of new ways to generate electricity for large spacecraft. Scientists said it could lead to development of a revolutionary propulsion system that replaces rockets.
The other satellite deployed from this shuttle mission, the European Space Agency's Eureca satellite, is still stuck in too low an orbit. A spokeswoman said the agency succeeded in raising Eureca by some two miles yesterday and added that it is not too concerned about the satellite's orientation or orbit. The agency was confident, she said, that it could raise Eureca high enough to be picked up as planned by another shuttle next spring.
Nasa has extended the mission by a day and Atlantis is now due to land at 6.39am US Central Time on Saturday.
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