"I have come to the conclusion that the prosecution has failed beyond reasonable doubt to prove its case," Chief Magistrate Aggrey Muchelule told the court on Monday.
"I find them not guilty and set them free."
He said there was no evidence the defendants - Salmin Mohammed Khamis, Mohammed Kubwa Seif and Said Saggar Ahmed - were linked to al-Qaida.
Three Israelis and 12 Kenyans were killed after two bombers broke through barriers outside the Paradise Hotel in Kikambala, 20km from Mombasa, with a four-wheel drive vehicle full of explosives, on 28 November 2002.
At almost the same time, a missile was fired at - but missed - an Israeli-chartered airliner, leaving the airport in the nearby resort town of Mombasa.
Muchelule issued the ruling almost three weeks after a Kenyan judge had acquitted four men charged with actually carrying out the bombing, saying prosecutors had failed to link them to the bombers or to al-Qaida.
One of the four acquitted was later charged with illegal possession of five anti-tank weapons and a hand grenade.
Lawyers said the trial was due to
US, British and Israeli pressure
Defence lawyers had charged that the hotel murder trial was the result of pressure from the US, Britain and Israel on Kenya to take action - an allegation Kenyan officials deny.
In the conspiracy trial, the judge said on Monday that police relied "on circumstantial evidence, which they have failed to prove".
Seif, Ahmed and Khamis had also earlier been charged with conspiring to blow up the United State embassy in Nairobi in 1998 and 2003; but the prosecution dropped those charges on 10 May.
Seif's lawyer, Kirathe Wandugi, said that he was extremely happy with the magistrate's decision.
"Our clients have been exonerated and the course of justice has been met. It's been a very long trial. These people have suffered; two and a half years have gone," he said.
He added that his client and Ahmed and Khamis might consider suing the government for wrongful arrest, because they believed their arrest was due to pressure from the US.
Osama bin Laden's al-Qaida group claimed responsibility for the hotel bombing and the attempt on the airliner.