Marin Mrcela, the court judge, said: "Although he [Norac] knew... that during the action persons who were subordinated to him were setting on fire and destroying houses, destroying property and that civilians were being killed, he did not do anything."
As a commander Norac "should have reacted adequately, but he failed to do so," he said.
The former general was found directly responsible for the death of three civilians and two prisoners of war, as well as looting and destroying Serb houses.
Ademi, at the time the commander of a wider area in central Croatia, was acquitted after the court ruled that his authority was too "restricted and reduced" to hold him accountable.
Mrcela said Ademi had on two occasions called, albeit unsuccessfully, for the intervention of military police to prevent war crimes.
"The court has eventually reached a right ruling as it should be," Ademi said after the verdict was heard.
"I have lived with this agony since 1993. Now I can live normally."
During the trial, which opened in June last year, each defendant had sought to shift responsibility on to the other.
The operation against an area held by Serb fighters resulted in 300 buildings being destroyed, water wells being contaminated, cattle killed and civilian property looted.
Norac's lawyer said he would appeal the verdict with the country's Supreme Court.
In 2003, Norac was sentenced by a Croatian court to 12 years in jail for war crimes against ethnic Serbs committed in another area.
The trial was closely monitored by European observers, which has conditioned Croatia's candidacy into the European Union on its ability to deal with war crimes committed by its own nationals.
In the past, indictments against former military leaders, whom many locals view as heroes of Croatia's war of independence from the former Yugoslavia, have sparked anger and protests in the country.
Another three former Croatian generals, Ivan Cermak, Ante Gotovina and Mladen Markac, are being tried for war crimes against ethnic Serbs before the ICTY.