London's Daily Mail has the story. In the film, Brüno meets with Abu Aita, whose name appears in a caption identifying him as "terrorist group leader, Al-Aqsa Martyrs Brigade." Brüno says that in order to get famous, he'd like to be kidnapped by some terrorists, and he advises Abu Aita to have his people get rid of their beards, since Osama bin Laden looks like "a kind of dirty wizard of homeless Santa." Then Abu Aita kicks Brüno out, the implication being that he's offended by Brüno's mockery of Osama. (You can see a clip from the scene here.)
But Abu Aita says he's not a terrorist, that he opposes terrorist groups, and that he's a "peace activist." He says he's received death threats since the movie came out, and that it has ruined his life. Moreover, while the film claims the interview took place in a refugee camp in Lebanon, it was actually shot in a popular West Bank hotel, in an area under Israeli control, next to an Israeli army base. Abu Aita says he was told he was meeting with a German filmmaker doing a documentary about Palestinians.
It's well known that Baron Cohen's crew would lie to people to get them to participate, since much of the humor relies on the victims not knowing beforehand that they'd be talking to a flamboyant fashion designer, let alone one who's a fictional character. If what Abu Aita says is true, though, the film's portrayal of him -- using his real name and matter-of-factly describing him as a terrorist leader -- is definitely unethical and probably illegal. Some of it may come down to the wording on the waivers Abu Aita must have signed before agreeing to appear in the movie. Defamation is much easier to prove in the U.K. than the U.S., though, so if Abu Aita is telling the truth about his not being affiliated with the Al-Aqsa Martyrs Brigade (which is a real group), then he probably has a slam-dunk case.
There's a hitch, though: Abu Aita really was affiliated with that group from 2000-2003, but isn't anymore. He told World Net Daily (ugh) in July, after Baron Cohen's Letterman appearance, that he's a board member of the Holy Land Trust, a not-for-profit, non-violent community organization in Bethlehem. It may well be that his involvement with the terrorist group is behind him, and that Baron Cohen's people didn't realize their information was outdated. (I'm trying to give Brüno the benefit of the doubt here.) We'll see what Baron Cohen's lawyers come up with as a defense.