Sure: http://www.law.cornell.edu/cfr/text/8/101.3

The relevant portion is: "A person born in the United States to a foreign diplomatic officer accredited to the United States, as a matter of international law, is not subject to the jurisdiction of the United States. That person is not a United States citizen under the Fourteenth Amendment to the Constitution. Such a person may be considered a lawful permanent resident at birth."

So, rather than being denied citizenship, it's almost like given their parents privilege, they are being protected?

They are protected from the duties of a citizen. Military service [1] and jury duty come to mind.

[1] I know that the US does not have conscription at the present time

Thanks! Interesting...