El-Masri was released in 2004 after he says U.S. officials realized he was not involved with terrorism.
The Bush administration argued that el-Masri's appeal should be rejected because allowing his lawsuit against the CIA suit to go forward in court would expose state secrets. Lower federal courts sided with the government and the Supreme Court effectively ended the case when it refused to consider it further.
El-Masri's case sparked outrage in Germany and mobilized civil and human rights groups on his behalf.
Sharon Bradford Franklin is an attorney with the Constitution Project, an organization that seeks to protect civil liberties during the war on terror.
"Well, we are very disappointed that the court decided not to take the case," said Franklin. "We really felt that this was an excellent opportunity for the court to revisit the scope of the state secrets privilege."
The Supreme Court formally recognized the government's right to protect state secrets in a 1953 ruling that allowed the U.S. military to keep secret the details of a plane crash.
The el-Masri case also drew attention to the CIA program of what is called extraordinary rendition in which terror suspects are sent from one country to another for questioning.
Human-rights groups have criticized the program and raised questions about the torture of terror suspects. They had hoped the el-Masri case would shed new light on the practice.
"The Bush administration has used what is known as the state secrets doctrine liberally to seek dismissals of cases that raise embarrassing issues for the government and perhaps would expose illegal activity," said Jennifer Daskal with Human Rights Watch.
The Supreme Court decision was welcomed at the White House. This is presidential spokeswoman Dana Perino.
"This is a country that is facing unprecedented threats that we have not dealt with before in terms of al-Qaida and other terrorists, and I believe that the Justice Department is judicious in applying the state secrets act," said Perino.
President Bush has repeatedly defended the administration's policies in the war on terror and just last week again rejected allegations that terror suspects are subject to torture.
"This government does not torture people," he said. "We stick to U.S. law and our international obligations."
Germany tried to extradite 13 suspected CIA agents to stand trial in the el-Masri case earlier this year but was rebuffed by the United States.
