The prosecutor, Hans Mos, said he would not comment about the kind of evidence his office is reviewing but that he does not anticipate finding Holloway's remains and prosecuting a case without them would be "very hard."
"We promised the suspects that after Dec. 31, we will not pursue the case," Mos told The Associated Press Friday. "This investigation should end at a certain point."
Holloway's parents did not return multiple messages left at their homes and on their cell phones.
No one has been formally charged in the investigation, which critics have said was botched in its early stages by Aruban authorities.
The probe has revolved around three suspects: Joran van der Sloot, a 20-year-old Dutch citizen and brothers Deepak Kalpoe, 24, and Satish Kalpoe, 21, from Surinam.
They were the last people known to see Holloway before she vanished on the night of May 30, 2005. All three, who have denied any role in her disappearance, have been arrested several times - the latest arrests coming last month - but released after different judges ruled there was not enough evidence to keep holding them.
Mos told the AP he will drop the case unless prosecutors in his office agree before the New Year that they have strong enough evidence to go to court.
He said he imposed the deadline himself earlier this year because he feels two years is a reasonable amount of time for bringing charges against someone.
Mos said he and the Holloway family feel pursuing a minor charge "doesn't serve a purpose." A person convicted of making a body disappear, for example, would serve only six months in prison, he said.
The search for Holloway spanned more than two years and involved hundreds of volunteers, Aruban soldiers, FBI agents and even Dutch F-16 jets laden with search equipment.
"We have a strong conviction that something happened that night, and that it was a very serious thing," Mos said. "The question is whether we are able to prove it."
He said he does not anticipate ever finding Holloway's remains.
"It's very hard to try a case without a body," he said. "It's not impossible, but you need substantial evidence that somebody was killed."
Authorities have combed sand dunes, drained a pond and dove into the island's clear waters. They have detained people including a disc jockey, a casino croupier, two former hotel security guards and even van der Sloot's father, a judge in training at the time.
False leads have included blond hairs attached to a duct tape found along Aruba's coast, and a bloody mattress later linked to a dead dog.
"The Aruban prosecution is going around in circles," said Joseph Tacopina, one of van der Sloot's attorneys. "They've bumbled this case from the beginning."
In 2005, Aruba's prime minister met with Holloway's mother and said authorities made mistakes at the start of their investigation.
Holloway arrived in Aruba to celebrate her high school graduation. On the last night she was seen alive, the Mountain Brook, Alabama native attended a beach concert featuring Boyz II Men and Lauryn Hill and then ate and danced at Carlos 'N Charlie's bar and restaurant.
She never showed up for her return flight, and police found her passport in her hotel room with her packed bags.