Tzahi Hanegbi, who heads the powerful parliamentary committee on foreign affairs and defence, had been facing a string of serious corruption charges including fraud, bribery, perjury and breach of confidence.
But a three-judge panel at the Jerusalem magistrates court found him guilty only on one charge of perjury and cleared him on all other counts.
Police began investigating Hanegbi in 2004 following accusations he made dozens of appointments in his office and created fictitious jobs for members of the rightwing Likud party to which he belonged at the time.
The allegations related to a period between 2001 and 2003 when he was environment minister. In 2006, Hanegbi was indicted by the attorney general and put on trial.
In the ruling, Judge Yoel Tzur wrote that the panel had taken into account the fact that at the time of the appointments, this "did not constitute fraud or breach of trust, and that all of Hanegbi's predecessors in the position had behaved in the same way."
"The court understood that during my time in office I was working according to a different system and the court therefore rejected by majority the attempt to characterize my actions as criminal."
After the police investigation began in 2004, the attorney general took steps to tighten the regulations on political appointments.
Although Hanegbi is a senior figure within the opposition, he is widely regarded as close to Prime Minister Benjamin Netanyahu and someone who is strongly in favour of Kadima joining the governing coalition.
A conviction would have seen Hanegbi suspended from the Knesset and effectively ended his political career, Haaretz said, but the not guilty verdict increases the chance of a deal with Netanyahu's Likud party.
Hanegbi's trial is just one in a string of scandals that has plagued political figures in Israel over the past 10 years.
According to Israel's Movement for Quality Government, no minister has ever been convicted for corrupt political appointments.
Source: AFP Global Edition