A US Army official said investigators found that American troops who shot the Italian intelligence officer Nicola Calipari did nothing wrong.
The official also said the troops would consequently not be disciplined.
But Italy disagrees with findings in the preliminary report by the US military investigators and has balked at endorsing it, added the official, who spoke on condition of anonymity.
US troops accidentally killed Calipari when they opened fire on a car heading for Baghdad airport in which he was escorting Italian journalist Giuliana Sgrena, who had just been released.
The friendly fire incident has caused tension between the United States and Italy, one of Washington's staunchest allies in Iraq.
Calipari was killed as he escorted
Giuliana Sgrena (R) to the airport
Calipari, hailed as an Italian national hero, was fatally wounded as he threw his body over Sgrena to protect her from a hail of bullets.
Sgrena, an award-winning journalist, was held hostage in Iraq for a month before Calipari masterminded her release. She was wounded but survived.
The US Army official said Italy was disputing two factual issues in the report - the car's speed as it approached the checkpoint and the nature of communications between the Italians and US forces before the incident.
"The soldiers were only complying with the standard operating procedures for those checkpoints, so therefore are not culpable to dereliction of duty charges," the army official said.
"Everybody feels terrible about it. But given the climate and the security atmosphere, the security procedures at the checkpoint operations have to be run by the letter," the official added.
The official added that the fact-finding aspect of the investigation was complete, but it remained to be seen whether the report would be released solely by the United States or with the blessing of the Italians.
Rome has said the Italians had been driving slowly, received no warning and had advised US authorities of their mission to evacuate Sgrena from Iraq.
"The soldiers were only complying with the standard operating procedures for those checkpoints, so therefore are not culpable to dereliction of duty charges"
US Army official
Iraqis often complain that US troops are too quick to fire from checkpoints that are difficult to spot.
The US embassy in Baghdad has said the soldiers fired from a checkpoint set up temporarily to boost security for US ambassador John Negroponte as he drove to a dinner meeting with General George Casey, the top US commander in Iraq.
Army Brigadier-General Peter Vangjel, the 18th Airborne Corps Artillery Commander, was named to head the US probe of the incident.