The former senator and governor cited family and unfinished plans at New School University, where he is president, in his decision not to run for the Republican Hagel's seat.
But, "I got much closer to saying yes than I thought I would," said Kerrey, 64.
"Bringing a voice of moderation in the Senate was very important to me," he said. "I'm very worried about the direction of the country. We're polarized on many issues."
No Democrats have declared their candidacy in the Nebraska Senate race. Now that Kerrey is out, Democrats will likely turn to Omaha Mayor Mike Fahey or Scott Kleeb, who lost the 3rd District Congressional race last year. Fahey said Wednesday he'll take the next few weeks to decide whether to run.
Kleeb said he won't run against Fahey and is not ready to make a decision.
Former Nebraska Gov. Mike Johanns is readying his campaign for the Republican nomination after resigning last month as U.S. agriculture secretary. Also on the GOP ticket is state Attorney General Jon Bruning and businessman Pat Flynn.
Steve Achelpohl, chairman of the Nebraska Democratic Party, said he's disappointed in Kerrey's decision but is certain the party will field a strong candidate.
Kerrey was elected Nebraska governor in 1982, then to the Senate in 1988. He was re-elected in 1994 and did not seek a third term in 2000.
Kerrey has been president of New School University in New York since 2001. He has remained politically active, serving on the independent commission that investigated the Sept. 11, 2001, terrorist attacks.