The Thursday ruling means that no one is serving time for 9/11 attacks after facing charges in a court of law, though numerous suspects are behind bars.
However, the retrial of Moroccan student Munir al-Mutasaddiq may yet lead to his re-conviction.
The Karlsruhe appeals court decision is likely to embarrass prosecutors coming so soon after a fellow suspect was acquitted on similar charges.
In February 2003, a Hamburg court gave the 29-year-old al-Mutasaddiq the maximum possible prison sentence of 15 years on more than 3000 counts of accessory to murder based on the toll of the attacks in New York and Washington.
But his lawyers based their appeal on the refusal of American justice authorities to allow an alleged top operative from Usama bin Ladin's al-Qaida network in US custody to testify.
Grounds for retrial
The court noted when it passed its verdict that the absence of operative Ramzi bin al-Shaiba was problematic for the case.
But it ruled nevertheless that al-Mutasaddiq was an Islamic extremist who was in on the conspiracy and had provided key logistical help for the hijackers.
The same tribunal, however, cleared fellow Moroccan student Abd al-Ghani Mazudi, 31, one year later on the grounds that its inability to question al-Shaiba deprived the defendant of key evidence that might exonerate him.
Al-Shaiba has reportedly told investigators that the only members of the Hamburg group aware of the plans to attack the United States were himself and the three future hijackers, including alleged ringleader Muhammad Atta.
Al-Mutasaddiq's lawyer, Josef Graessle-Muenscher, told journalists he had expected his appeal - based on questions raised by the federal judges at a hearing late last month - to be successful.
"Al-Shaiba is the black hole in the case that cannot be plugged - the court made that clear on 29 January."
The judges queried at that time whether prosecutors should have to meet a higher standard of proof if the court is not granted access to a potentially crucial witness.
Moroccan Abd al-Ghani Mazudi
was acquitted last February
Interior Minister Otto Schily reportedly embarked on a secret mission in December to convince US Attorney General John Ashcroft to produce al-Shaiba but was rebuffed.
Munir al-Mutasaddiq was the only man worldwide ever to be convicted over the 11 September 2001 attacks. He was a close friend of three of the hijackers.
The son of a well-to-do medical assistant in Marrakash, Mutasadiq came to Germany in 1993 to pursue studies in electrical engineering.
After learning German in the western city of Muenster, he moved to Hamburg in 1995 and enrolled in the Technical University.
Once there, he met the Egyptian Muhammad Atta - the future ringleader of the 19 hijackers who would attack New York and Washington.
Al-Mutasaddiq admitted during his trial that he attended a paramilitary training camp run by al-Qaida in early 2000, explaining that it was the duty of every good Muslim to learn to use a weapon.
He later shared a room with suspected top al-Qaida operative Ramzi bin al-Shaiba, who is believed to have been a mastermind behind the plot, as well as Atta, in an apartment on the city's Marien Street.
While the hijackers were in the United States, he handled the transfer of small amounts of money for them using the power of attorney he had over one of their bank accounts as they pursued flight training.
Unlike al-Shaiba, and two alleged conspirators still at large, Said Bahaji and Zakariya Isabar, al-Mutasaddiq did not go underground after the attacks but remained in Hamburg. He was arrested in November 2001.
He consistently claimed his innocence during his three-and-a-half-month trial, telling the court that he was as shocked as any of the judges when he watched the events of 11 September 2001 unfold on television.
"I hope that something like September 11 never happens again," he said on the penultimate day of his trial.