Khaled el-Masri, 44, alleged that he was kidnapped by CIA agents in Europe and held in an Afghan prison for four months in a case of mistaken identity.
The administration has not publicly acknowledged that el-Masri was detained, and lower courts dismissed his suit after the administration asserted that state secrets would be revealed if the lawsuit was not blocked. The justices rejected his appeal without comment.
The case had been seen as a test of the administration's legal strategy to stop it and several other national security lawsuits by invoking the doctrine of state secrets. Another lawsuit over the administration's warrantless wiretapping program, also dismissed on state secrets grounds, still is pending before the justices.
"We are very disappointed," Manfred Gnijdic, el Masri's attorney in Germany, told The Associated Press in a telephone interview from his office in Ulm.
"It will shatter all trust in the American justice system," Gnijdic said, charging that the United States expects every other nation to act responsibly, but refuses to take responsibility for its own actions.
"That is a disaster," Gnijdic said.
CBS News legal analyst Andrew Cohen said the court's decision was "no great surprise."
"In fact it would have been a shock had the court accepted the case for review because the state-secrets doctrine, designed to block these types of lawsuits, is fairly strong. Remember," Cohen said, "even U.S. citizens who have made these sorts of claims haven't gotten far in the federal courts."
Conservative legal scholar Douglas Kmiec said the Bush White House uses the doctrine too broadly. "The notion that state secrets can't be preserved by a judge who has taken an oath to protect the Constitution, that a judge cannot examine the strength of the claim is too troubling to be accepted," said Kmiec, a law professor at Pepperdine University.
The court has not examined the state secrets privilege in more than 50 years.
A coalition of groups favoring greater openness in government says the Bush administration has used the state secrets privilege much more often than its predecessors.
At the height of Cold War tensions between the United States and the former Soviet Union, U.S. presidents used the state secrets privilege six times from 1953 to 1976, according to OpenTheGovernment.org. Since 2001, it has been used 39 times, enabling the government to unilaterally withhold documents from the court system, the group said.
Steven Shapiro, legal director of the ACLU, spoke with CBS News correspondent Wyatt Andrews about the case.
"What happened to him was lawless," Shapiro said, "You allow the government to essentially prevent the courts from ever independently reviewing the legality of the government's conduct."
El-Masri's case centers on the CIA's "extraordinary rendition" program, in which terrorism suspects are captured and taken to foreign countries for interrogation. Human rights groups have heavily criticized the program.
President Bush has repeatedly defended the policies in the war on terror, saying as recently as last week that the U.S. does not engage in torture.
CBS News national security correspondent David Martin reports that according to CIA Director Michael Hayden, fewer than 100 terrorists have been held in the agency's secret prisons and less than a third of those were subjected to what he calls "special methods of interrogation" - what others have called "torture".
Hayden defended CIA tactics last month saying "the intelligence they've produced is absolutely irreplaceable. It's been crucial in giving us a better understanding of the enemy we face as well as leads on taking other terrorists off the battlefield."
El-Masri, a German citizen of Lebanese descent, says he was mistakenly identified as an associate of the Sept. 11 hijackers and was detained while attempting to enter Macedonia on New Year's Eve 2003.
He claims that CIA agents stripped, beat, shackled, diapered, drugged and chained him to the floor of a plane for a flight to Afghanistan. He says he was held for four months in a CIA-run prison known as the "salt pit" in the Afghan capital of Kabul. After the CIA determined it had the wrong man, el-Masri says, he was dumped on a hilltop in Albania and told to walk down a path without looking back. The lawsuit against former CIA director George Tenet, unidentified CIA agents and others sought damages of at least
The U.S. government has neither confirmed nor denied el-Masri's account. But German Chancellor Angela Merkel has said that U.S. officials acknowledged that El-Masri's detention was a mistake.
El-Masri's account also has been bolstered by European investigations and U.S. news reports. In January, German prosecutors issued arrest warrants for 13 suspected CIA agents who allegedly took part in the operation against him.
El-Masri's lawyers also tried to use a comment by former CIA director George Tenet to show that both the program and el-Masri's case are well-known to the public.
Rather than refuse to comment when asked about El-Masri's claims, Tenet told CNN in May, "I don't believe what he says is true."
The state secrets privilege arose from a 1953 Supreme Court ruling that allowed the executive branch to keep secret, even from the court, details about a military plane's fatal crash.
Three widows sued to get the accident report after their husbands died aboard a B-29 bomber, but the Air Force refused to release it claiming that the plane was on a secret mission to test new equipment. The high court accepted the argument, but when the report was released decades later there was nothing in it about a secret mission or equipment.
The case is El-Masri v. U.S., 06-1613.