The City Court in Aarhus said on Thursday it could not be ruled out that some Muslims had been offended by the 12 drawings printed in Jyllands-Posten, but said there was no reason to assume that the cartoons were meant to "belittle Muslims".
"It cannot be ruled out that the drawings have offended some Muslims' honour, but there is no basis to assume that the drawings are, or were conceived as, insulting or that the purpose of the drawings was to present opinions that can belittle Muslims," the court said in its ruling.
"Even if the text accompanying the pictures could be read as being derogatory and mocking, the cartoons are not offensive," the court said.
The newspaper published the cartoons on September 30, 2005 with an accompanying text saying it was challenging a perceived self-censorship among artists afraid to offend Islam.
The caricatures were reprinted in European papers in January and February, fueling a fury of protests in the Islamic world.
Some turned violent, with protesters killed in Libya and Afghanistan and several European embassies attacked.
"Even if the text accompanying the pictures could be read as being derogatory and mocking, the cartoons are not offensive"
Danish Aarhus district court
Islamic law forbids any depiction of the prophet, even positive ones, to prevent idolatry.
The seven Muslim groups filed the defamation lawsuit against the paper in March after Denmark's top prosecutor declined to press criminal charges, saying the drawings did not violate laws against racism or blasphemy.
The plaintiffs, who claimed to have the backing of 20 more Islamic organisations in the Scandinavian country, had sought $16,860 in damages from Carsten Juste, the Jyllands-Posten editor-in-chief, and Flemming Rose, the culture editor who supervised the cartoon project.
The lawsuit said the cartoons depicted prophet Muhammad "as belligerent, oppressing women, criminal, crazy and unintelligent, and a connection is made between the Prophet and war and terror."