The men - Scott Collins, 19; Derek Kelly, 22; Adam Lennon, 21; and Greig Withers, 21; - all received fines at Edinburgh Sheriff Court yesterday after admitting reckless interfering and blocking up badger setts last year.
But a string of other charges relating to animal cruelty and attacking badgers were not pursued by fiscals.
The move was criticised by police and animal welfare groups who attended the hearing.
The Crown accepted the men's story that they had been rabbit-hunting at Balerno, when a Patterdale Terrier belonging to Withers bolted and followed a rabbit into a badger sett.
It was later found to have a number of brutal injuries consistent with a fight with a badger.
All four men - three of whom had trained as gamekeepers - insisted they had only been trying to retrieve the lost dog.
However Jim McGovern, wildlife and environmental crime co-ordinator with Lothian and Borders Police, said:
"In an area thought to be infested with rabbits, they didn't manage to catch one in four to five hours. Either they weren't very good at what they are doing or something else was going on that day."
Doreen Graham, of the Scottish Society for the Prevention of Cruelty to Animals (SSPCA), said: "Serious questions will be asked of the procurator fiscal service.
Wildlife prosecutions are few and far between and the court system is doing little to tackle this.
The court heard that all four had an interest in "country pursuits", and Collins had even been named student gamekeeper of the year.
They had gained permission to hunt rabbits at Dalmahoy Hill Plantation on August 20 last year.
Police and SSPCA officials were alerted when a resident heard animal screeches from the woods.
They found the men digging into the badger sett and another entrance had been closed up.
When the dog was rescued from the sett, it had "blood pouring from its mouth and ears and skin was missing from its face".
SSPCA experts said it was consistent with an attack by a badger.
Yesterday, the four accused accepted two charges of interfering with a badger sett and obstructing access to a badger sett.
Four other charges, including attacking a badger sett and failing to properly treat the injured dogs, were all dropped as part of a plea bargain.
Sheriff Kenneth Hogg warned the men they would have been jailed if they'd been found to have intentionally attacked the badgers.
Instead, he handed Collins, from West Calder, West Lothian, and Withers, from Kilmarnock, fines of 640.
Kelly, of Bathgate, West Lothian, and Lennon, of Kilmarnock, received lesser penalties of 520.
The injured dog is still in the care of the SSPCA.