CBS News has learned that military investigators conclude there is not enough evidence to formally charge that Marine.
As CBS News Correspondent Kimberly Dozier reports, it happened during the bloody fight for Fallujah last fall. The Marines were engaged in bitter house-to-house combat with dug-in enemy fighters.
When Marines ran into a mosque seeking the source of insurgent fire, they found several Iraqis wrapped in blankets.
One Marine thought he saw one of them move.
Marine: "He's F***ing faking he's dead."
Second Marine: "And he's breathing."
Marine: "He's faking he's f***ing dead!"
Navy investigators have concluded what happened next may have been justified in the heat of battle.
In a moment too graphic to show, one of the Americans fired.
"He's dead now."
The insurgents, it turned out, were unarmed -- but investigators say the Iraqi the Marine thought he saw moving could have been going for a weapon. At the very least, Navy legal experts believe the situation is ambiguous enough that no prosecutor could get a conviction.
The original video added to popular anger over the Fallujah crackdown. Many Iraqis felt Fallujah's unarmed civilians bore the brunt of the U.S. campaign.
Hundreds of homes were destroyed in the battle, and months later, much of the city is still without power or water. Many Fallujans live in makeshift refugee camps far from their homes.
When news breaks that the Marine will not be prosecuted, it will not go over well here.
It's now up to Marine commanders to decide what, if any internal action to take against the Marine. And investigators are still conducting ballistics tests to determine how the other insurgents in the mosque were killed.