The "time has come for us to recognise that the injustice that he has suffered warrants some mercy and his freedom", Bishop Saunders said, according to a Catholic Weekly report.
"The manner in which Mr Hicks has been treated and the torture he has endured is a level of treatment that is completely unacceptable to anybody who holds in high regard due processes of law and the rights in any real democracy," he said.
Hicks was charged two years ago with conspiracy to commit war crimes, attempted murder by an unprivileged belligerent and aiding the enemy.
However, it is understood the charges he faced two years ago, before his trial collapsed, will not proceed, the Weekly says.
The charge of aiding and abetting the enemy may also be dropped.
"I would hope if he is to be charged that it is to happen quickly so that he can see the justice that he deserves," Bishop Saunders said.
"And if he was to be found guilty that the five years he has spent in prison should be taken into account."
David Hicks is still expected to face charges that carry a maximum penalty of life imprisonment, including providing "material support" for a terrorist organisation.
US prosecutors are expected to introduce evidence that he trained at up to four terrorist camps.
However, prosecutors have raised the possibility that a plea bargain could bring a reduced sentence for Mr Hicks.
"It has been a convoluted process to bring him to justice, so convoluted that it hasn't come to any completion yet," Bishop Saunders said.
"Natural justice would dictate that they ought to be seriously considering dropping all charges against him.
"And if he can't be charged in an Australian court of law then he ought to be returned home and freed."
Meanwhile, in another report, the Catholic Weekly cites an Australia Day reflection by Jesuit priest Fr Frank Brennan, who urges Australians to seek justice rather than short term answers to big questions.
Referring to an earlier statement by Bishop Saunders saying that the Federal Government could have spoken out more strongly against the execution of Saddam Hussein, Fr Brennan said the ambivalence of Australian Catholics to Saddam's execution showed "just how infected we are by consequentialist reasoning about moral questions".
"Could innocent lives be effectively defended in Iraq by keeping him in prison rather than killing him?" asked Fr Brennan, who lectures at ACU National and Notre Dame universities.
"If so it was wrong to kill him, regardless of what positive political consequences apologists thought might come from the execution."
Drop charges against Hicks - bishop's call to US (Catholic Weekly, 28/1/07)
Jesuit calls for rethink of social justice stance (Catholic Weekly, 28/1/07)
LINKS (not necessarily endorsed by Church Resources)
Australian Catholic Social Justice Council
Australian Catholic Bishops Conference
David Hicks (Wikipedia)
Try Hicks or bring him home, Bishops tell Govt (CathNews, 4/12/06)
Cardinal Pell calls for fair trial for David Hicks (CathNews, 10/10/06)
Time for Hicks to go home, says Bishop (CathNews 23/8/06)
Bishop says Govt must ensure justice for Hicks (CathNews 22/9/05)
Hicks and Habib focus of bishop's Human Rights Day message (CathNews 10/12/04)
Council urges Govt to insist on human rights at Guantanamo Bay (CathNews 10/12/03)
Bishop says Govt can do more for Hicks and Habib (CathNews 13/11/03)
Press Council backs church official on unfair "traitor" headline (CathNews 14/11/03)
Appointment to Office for Employment Relations announced (ACBC Media Release, 24/1/07)
25 Jan 2007