why is it that [H2O] is NOT included in the rate law, even though it is a reactant?

Isn't it because the concn of the water doesn't change appreciably? Another way of saying it is that the activity of any compound in its standard state = 1. There are instances, I think, where the concn of water is included; i.e., where a non-aqueous soln of A and B react to PRODUCE water. There the concn water goes from zero to some value.