The Federal Court of Justice found against a father who was seeking €40,000 after the death of two of his children, and a widowed mother-of-six claiming €50,000.
In the September 2009 bombing, US planes hit two fuel tankers stolen by Taliban insurgents, killing about 100 people – including many civilians – near the northern city of Kunduz.
The German commander, then-colonel Georg Klein, had called in the night-time strike after an informant had repeatedly claimed that no civilians were near the tankers.
Klein, who was later promoted to the rank of general, had feared that Taliban fighters could use the tankers as mobile bombs against a German military camp.
The court rejected the claim that Klein bore liability for a negligent act while on official duty. It found that he had exhausted all reasonable means of seeking to verify that no civilians were present.
“The military decision that was taken was valid under international law,” lead judge Ulrich Herrmann stated in the ruling.
The lawyer for the victims, Karim Popal said he wants to take the case to the European Court of Human Rights in Strasbourg.
After the tragedy, the German parliament described the strike as “one of the most serious incidents involving the German military since the Second World War”.
It has already paid out $5,000 each to families affected by the raid, stressing that the money was not compensation but humanitarian aid.
Germany has been the third-largest contributor to NATO forces in Afghanistan behind the United States and Britain.