The Israeli army had been undertaking systematic house demolitions in the densely populated, violent area along the Egyptian border. It said the homes were used for cover by militants to attack soldiers and Jewish settlers.
The demolitions left some 17,000 Palestinians homeless, according to U.N. reports. The policy of razing homes sparked international condemnation at the time.
Israel pulled out of Gaza in 2005, and Palestinians took control. Since then, Gaza militants have fired thousands of rockets at Israel, triggering cross-border raids and a three-week war in 2008.
The judge said soldiers had moved their bulldozers several times to avoid the activists, but the young woman ultimately ended up in "a dead zone" where the driver could not see her.
An activist who was with her, Tom Dale, said in an emailed statement that Corrie "could not have been more visible: standing, on a clear day, in the open ground, wearing a high visibility vest."
The Corries have been more cautious, saying they believe the driver saw their daughter but stopping short of calling the death intentional.
The state prosecutor's office said three different investigations were conducted into Corrie's death, all concluding that the driver could not see Corrie.
"The death of Rachel Corrie is without a doubt a tragic accident," the prosecution said in a statement. "The driver of the bulldozer and his commander had a very limited field of vision, such that they had no possibility of seeing Ms. Corrie and thus are exonerated of any blame for negligence."
The Corrie case was the first civil lawsuit over a foreigner harmed by the military to end in a verdict after a full trial.
Several documentaries have been made about her life and death, along with a play performed in Britain and the U.S. A book of her writing was published, and in 2010, a group of international activists who tried to break Israel's blockade of the Gaza Strip sailed on a ship called the "Rachel Corrie."