In February this year Chief Prosecutor Carla del Ponte filed a motion for the trial to be referred to Croatia, where the atrocity was committed, or to Serbia, where 17 persons have already been brought to justice for those crimes.
On June 10 del Ponte requested that her initial motion be withdrawn, citing problems that had arisen following talks with officials from the two countries.
ICTY judges concluded on Friday that "on balance, the interests of justice appear to be better met by this trial being conducted before this Tribunal".
The accused, also known as the Vukovar Three, are charged with war crimes and crimes against humanity for their alleged involvement in the killing of more than 250 persons from the Vukovar hospital in November 1991. All three are in the tribunal's custody and have pleaded not guilty to the charges.