Free will is unique to human beings; no other creature has it. If God determined whether an individual was going to be righteous or wicked, there would be no reason for the judgment of our actions, for reward and punishment, or indeed for the Torah itself.

Free will is unique to human beings:

Autonomy is given to every human being. If he wants to incline himself toward a good path and be righteous, it is possible for him to do so, and if he wants to incline himself toward a bad path and be wicked, it is possible for him to do so. This is what is written in the Torah, “Behold, the man has become as one of us, to know good and evil” (Genesis 3:22). This means that this human species is unique in the world, and there is no other species similar to it in that an individual possesses the ability in himself, by means of his own understanding, to know good and evil, and to do all that he desires, and there is no one who prevents him from doing good or evil.

Without free will there would be no place for reward and punishment:

This is a central principle and a foundation of the Torah and the mitzvot…. If God were to decree that an individual will be righteous or wicked, or if there were something that drew that person, by his essential nature, toward a particular path, branch of knowledge, attribute, or deed…what place would there be for the entire Torah? According to which law and which justice could a wicked person be punished or a righteous person be rewarded? (Rambam, Mishneh Torah, Hilkhot Teshuva 5:1–4)

Further reading: For more on reward and punishment, see p. 256; A Concise Guide to the Sages, p. 164.

Even though God perceives all of our actions, He does not prevent us from doing wrong; rather, He allows us to sin. We have free will because we were created in the image of God, and just as God acts as He chooses, human beings are also able to act in accordance with their wills.

Because human beings were created in the image of the Holy One, blessed be He, He gave them autonomy to act as they will, and they are not compelled in their actions.… This is not the case with regard to the angels, who do not possess autonomy. They do what the Holy One, blessed be He, appointed them to do, and they cannot deviate from their mission. But humans, who were created in the image of God, are unique in that they are under their own authority. Just as God does what He wants, so too, people have a choice and can do what they want; they possess free will. (Maharal, Derekh Ĥayyim 3:15)

God gave free will to humankind, yet He is also the One who gave us our power to make choices. The intention of creation was for everyone to know that our actions are the result of God’s power.

God gave each of His creations the power to perform its [assigned] action: the fire burns and the tree grows. God did the same for the human; he has free will and can act as he chooses. The intention was that every creature would know that it is God who gives him his powers, and that even though a person acts of his own volition, he is like an ax in the hand of the woodchopper. This was the entire intention of creation. (Rabbi Yehuda Aryeh Leib Alter, Sefat Emet, Bereshit 5632)

Further reading: For more on the meaning of being created in God’s image, see p. 131.