State Prosecutors on Thursday ordered a criminal investigation into the Carmel fire closed on grounds of insufficient evidence to bring the case to trial.
Police suspected two youths aged 13 and 14 from the Druze village of Usafia deliberately set the blaze last December, which killed 44.
A bus carrying 37 prison service cadets and their commanding officers was engulfed in flames that killed all those on board.
The fire also caused millions of shekels in property damage and destroyed some 1.5 million trees.
A spokesman for the State Attorney's office said the decision had been made after a thorough investigation of all the evidence police had gathered since the investigation was opened.
State prosecutors concluded there would be "severe legal and evidential problems" if the case was brought to trial due to the fact that the victims died several hours after the blaze was set -- and at a significant distance from where the fire started.
Nava Boker, widow of Brigadier General Lior Boker who died in the Carmel fire, sharply criticized the prosecutor's decision to close the case.
"I am shocked by the decision, because it provides no deterrent [to setting future fires[ at all. Tomorrow, every boy playing with fire will know he has nothing to fear even if their is a loss of life, or damage to property or the environment," Boker said.
"This is unfortunate and outrageous decision," she added.