What is the ruling on exhuming the graves of the townspeople and building a mosque over them in which prayers are established, and what is the ruling on praying in this mosque?

If the graves have turned to dust and decayed, then it is permissible to utilize the cemetery for construction, agriculture, and other purposes, including building a mosque upon it. However, if they have not decayed and there is still a trace of the deceased, then it is not permissible to exhume them unless for a legitimate Shar'i reason. If they are exhumed to build a mosque, and no other place is available for it besides the cemetery, then there is no harm in that, and the prayer performed therein is valid.