The court ruled that the American court system had no jurisdiction over the PA or the Palestine Liberation Organization (PLO).
This decision overturns that of a lower court judge on 15 February 2015, who had made the anti-terrorism ruling against the PA based on the Anti-Terrorism Act passed by the US Congress after the PLO killed Leon Klinghoffer in 1985.
The families of the victims intend to appeal the decision of the Second US Circuit Court.
Rabbi Joel Meyers, chair of the WJC-US, said: "We are deeply dismayed by the decision of the Second US Circuit Court to dismiss the terrorism judgement against the PA. The families of the American citizens who were murdered by the Palestinian terrorists have waited too many years to see justice done.
"No amount of money can compensate for the pain and loss of loved ones but those who knowingly planned, financed and carried out vicious terrorist attacks that led to the murder and injuries of American citizens should be held accountable and punished as was decided by the lower court. We hope that this dismissal will be appealed and that terrorist entities and those who support them will be held responsible for their horrific crimes."
Ten American families sued over terrorist attacks in Israel in the early 2000s that left 33 people dead and more than 400 injured. After a trial in Manhattan federal court last year, jurors found the PLO and Palestinian Authority liable for the attacks and ordered the groups to pay the families $218.5 million, which was automatically tripled to $655.5 million under a US antiterrorism law.
On Wednesday, three judges for the Second US Circuit Court of Appeals dismissed the case. There was no US jurisdiction in this case, “no matter how horrendous the underlying attacks or morally compelling the plaintiffs’ claims,” wrote Judge John Koetl.