The State Department annual global human rights report said The Washington Post columnist was killed by agents of the kingdom, a close US partner, while he was inside the Saudi Consulate in Istanbul.
It drew no conclusion as to who was responsible, despite the belief of intelligence agencies and lawmakers that Saudi Crown Prince Mohammed bin Salman ordered the murder.
The report noted Saudi Arabia's Public Prosecutor's Office indicted 11 suspects and said 10 people were under investigation but has not released more information.
"At year's end the PPO had not named the suspects nor the roles allegedly played by them in the killing, nor had they provided a detailed explanation of the direction and progress of the investigation," it said.
The report added that the murder was one of several instances in which "the government or its agents engaged in arbitrary or unlawful killings" and contributed to "an environment of impunity" in the country.
It also cited a range of other human rights abuses in Saudi Arabia, including the arrest of at least 20 prominent women's rights activists, executions for nonviolent offenses, forced disappearances and torture of prisoners.
The report noted some gains in the monarchy, including that women were allowed to vote and run as candidates in municipal elections for the first time.
Khashoggi had been living in Virginia in self-imposed exile as he wrote columns critical of the Saudi government under the crown prince, the de factor leader.
His killing caused tensions to soar between the U.S. and the kingdom, with members of Congress saying they believed the crown prince was behind the operation, an allegation the Saudi government has denied.
President Donald Trump has been reluctant to place blame on a country that is central to his Middle East policy.
In presenting the report, Secretary of State Mike Pompeo said the US "will expose violations of human rights wherever they occur." He did not mention Saudi Arabia, but made clear the Trump administration will deal with foreign countries no matter how poor their rights record to advance national interests.
"The policy of this administration is to engage with other governments, regardless of their record, if doing so will further US interests," Pompeo said.
In addition to Saudi Arabia, the report pointed out abuses committed by NATO ally Turkey.
Turkey arbitrarily arrested tens of thousands of lawmakers, lawyers and journalists for alleged terrorism ties or legitimate speech and did not look thoroughly into abuse allegations.
"The government continued to take limited steps to investigate, prosecute, and punish members of the security forces and other officials accused of human rights abuses; impunity for such abuses remained a problem," the report said.
Human rights groups lambasted the report as inadequate even with Pompeo's qualification that the administration must work to promote US national interests.