[tomjen3]

>But how do you tell people that they lack basic knowledge or experience in certain areas without sounding bitchy or attacking.

We would have liked to work with you, but unfortunately we do not feel your skills in $AREA_OF_CONCERN are as strong as we require.

Despite this rejection we wish you a happy job hunt and strongly encourage you to apply to $CORP in the future.

If somebody was better, you say that outright.

If the problem is culture fit? Well I really wouldn't write that in an email (too likely to make you come of as an ass, too likely to make you easy to sue if the person was a member of some minority).