How do I turn the acceptance offer down gently? I am from a developing country and finished my BA in February 2011. I was a very good student and my university is one of the best in my country (It is in TimesHE top 200 global list so its prestige is somewhat acknowledged)
Last year I decided to go back to school after 4 years of fulltime employment (sector and position irrelevant to my research areas) and applied to 9 different M.S. programs in US. I was very uncertain about the strength and quality of international credentials, and gave myself no credit but to my surprise, only a month after my applications were in I have recevied 2 acceptances. By now I have 4 acceptances, 2 of which were my top choices. I am over the moon. I do not even want to hear from other 5, because I'm in for my top choices.

My question is this: I have been accepted to very good 2 M.S. programs for my research focus, and for both, program directors contacted me in person to congratulate and to state their interest to take me on as their student. Furthermore, both of them also offered me a TA position, one of them partial tuition waiver and the other one full waiver, while both give me a generous stipend and health insurance. However I cannot decide which one to go for.

One of them is sufficiently prestigious, my research interests are 50% in line with those of program director's, but their financial reward is great. I kinda negotiated the offer from her by sendind a follow up email and she finally sent me the offer. The school is also located at a nice city to live in, and I'd love to live there.
The other school, on the other hand, has the coolest program director a student would ever want, she is very friendly with me and I can tell she is genuinly interested in me. She'll be taking me on as one of her research students. Her research topic is 100% in line with mine. But this school waives only half of my tuition, so I'll be covering the other half myself. It is also located in a not-so-interesting city. 

Which one should I go for? Cool mentor-bad city-half tuition rates or OK mentor-cool city-fully funded? I'd like to turn the other down very gently and keep the bridges "unburned". How do I do that without getting anyone offended?

I plan to stay longer in US so to eventually get a PhD.
Before you turn it down, you should tell the school that offered you only half tuition that you have an offer from the another school (its OK to name it) that offers you full tuition. Mention that you prefer the offer from them (i.e., the half-tuition school) but that it will be financially hard for you to make it work.

There's a chance that the school that offered you a smaller package will be able to match the other in order to get you. If not, they'll understand why you eventually turn down their offer and they won't hold it against you.