Gordon Brown, Britain's prime minister, said at the time of the raids that police had foiled "a very big terrorist plot".
The men, 10 of whom held student visas, were arrested in raids in Manchester, Liverpool and Clitheroe in Lancashire.
But prosecutors said there was insufficient evidence to justify holding them any longer or bring charges against them.
Peter Fahy, chief constable for Greater Manchester police, defended the operation.
He said: "We had a duty to act to protect the public and a subsequent duty to investigate what lay before us.
"We don't take these decisions lightly and only carry out this kind of action if it is wholly justified."
All but one of the suspects are expected to be deported on national security grounds.
A lawyer for three of the men said they would fight to stay and continue their education in the UK.
Mohammed Ayub said: "Our clients have no criminal history, they were here lawfully on student visas and all were pursuing their studies and working part-time.
"Our clients are neither extremists nor terrorists. Their arrest and detention has been a very serious breach of their human rights."