Davis, who has been detained since Jan. 27, told Pakistani authorities that the two men in Lahore were armed and had threatened his life in an attempt to rob him. U.S. officials said Davis had diplomatic immunity and demanded his return.
The incident strained already tense relations between Pakistan and the U.S. over the past several weeks.
U.S. Ambassador to Pakistan Cameron Munter said the U.S. was grateful for the families' "generosity" in the matter. Monetary compensation, known as "blood money," is consistent with Islamic doctrine if the families forgive the offender.
"I wish to express, once again, my regret for the incident and my sorrow at the suffering it caused," Munter said in a statement reported in Pakistan. The U.S. Justice Department promised Pakistani officials that they have opened an investigation into the shooting incident.
"It had been decided by the court because this is part of Pakistani law as well as Islamic law," said a senior Pakistani official who was in close contact with the State Department on the case.
The Washington Examiner reported Tuesday that the case was nearing a breakthrough after the families of the slain men had agreed to a financial settlement.
CIA spokesman George Little said the United States worked closely with Pakistan on the matter.
"The agency and our Pakistani counterparts have had a strong relationship for years," Little said. "When issues arise, it's our standing practice to work through them. That's the sign of a healthy partnership. ... especially as we face a common set of terrorist enemies."
Not everyone was pleased with the way Pakistani officials wrangled over Davis' release.
Rep. Dana Rohrabacher, R-Calif., who spoke with Munter Wednesday morning as the ambassador was traveling by plane with Davis, said he was disappointed by Pakistan's handling of the matter.
"I think that this whole thing regarding the Raymond Davis episode should leave a bad taste in the mouths of most Americans, and it appears the Pakistani government is not the friends they make themselves out to be," Rohrabacher told The Examiner. "We should make sure the Pakistan government, whom we aid with tens of billions of dollars, that the U.S. is not going to take this kind of abuse forever ... from a nation that claims to be our friend."
Raza Bokhari, director of the World Affairs Council of Philadelphia, a nonprofit group that works to build stronger ties between Pakistan and the U.S., said he was relieved the diplomatic crisis had ended. "It is unfortunate that the Pakistani government abdicated its responsibility and had to take cover of Shariah law to secure the release of Davis," he said.
Sara A. Carter is The Washington Examiner's national security correspondent. She can be reached at firstname.lastname@example.org.