Tested only on Qemu simulator with git (git://git.qemu.org/qemu.git) version
1.0.50.

You have to apply the patches:

0001-target-arm-Fixed-ARMv7-M-SHPR-access.patch
0002-target-arm-Disable-priority_mask-feature.patch
0003-target-arm-Evil-hack-for-BASEPRI-and-BASEPRI_MAX.patch
0004-target-arm-Evil-hack-to-increase-the-RAM-size.patch

Command line:

qemu-system-arm -S -s -net none -nographic -M lm3s6965evb -kernel hello.bin