The ruling by U.S. District Judge Royce C. Lamberth allows the families of the victims of the Dhahran bombing to seek $254 million in compensation from the Iranian government.
Lamberth relied heavily on testimony by former FBI Director Louis Freeh, who investigated the bombings.
On June 25, 1996, a truck bomb exploded in a military housing area known as the Khobar Towers dormitory near Dhahran, killing 19 U.S. personnel.
U.S. authorities have long alleged that the bombing was carried out by a Saudi wing of the militant group Hizballah, which receives support from Iran and Syria.
The lawsuit was brought by the families of 17 of the 19 people killed in the attack. Iran never responded to the lawsuit and did not send an attorney to appear in the case.