Libby, the former chief of staff to Vice President Dick Cheney, was convicted of perjury and obstruction for lying about his conversations with reporters about outed CIA operative Valerie Plame.
"We remain firmly convinced of Mr. Libby's innocence," attorney Theodore Wells said. "However, the realities were, that after five years of government service by Mr. Libby and several years of defending against this case, the burden on Mr. Libby and his young family of continuing to pursue his complete vindication are too great to ask them to bear."
President Bush commuted Libby's 30-month jail sentence in July. Libby paid a $250,000 fine and must serve two years' probation. Libby remains a convicted felon, but Mr. Bush could issue a full pardon as his administration winds down.
Wells said he has not discussed a possible pardon with the president and does not know what Mr. Bush will do.
Libby was the only person charged in the investigation into the leak of Plame's identity. Nobody was charged with the leak itself, which Plame alleges was politically motivated. Her husband, former Ambassador Joseph Wilson, was a vocal critic of the Bush administration's war policy.
The decision to drop his appeal is also a tactical one. Even if a federal appeals court overturned Libby's conviction, it would only lead to a new trial. If Libby were convicted again, a presidential commutation wouldn't apply, meaning he might have to serve jail time. And by that time, President Bush likely would be out of office.
"The appeal would lead only to a retrial," Wells said, "a process that would last even beyond the two years of supervised release, cost millions of dollars more than the fine he has already paid, and entail many more hundreds of hours preparing for an all-consuming appeal and retrial."
Special Prosecutor Patrick Fitzgerald has said the leak investigation is closed.