OK, I fixed mine without losing any data by following the instructions below, copied from here.
EDIT: To clarify, I have a 2012 wifi so used JWR66Y factory image and then used ADB sideload to install the kitkat zip update which I found on this page. link
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I was in the same situation and ran into that issue as well. What I did was download the 4.3 factory image from here:
https://developers.google.com/androi...s/images?hl=vi
Make sure you get the correct one for your device. I have a 2013 wifi so I chose: Android 4.3 (JSS15R)
Inside that downloaded file, you'll find image-razor-jss15r.zip. It's a couple of levels down. Unzip the files from there to your SDK folder (should be boot.img, recovery.img, system.img, userdata.img, and cache.img).
Boot your Nexus 7 to the bootloader (volume down + power) and connect to your PC with USB cable. Do NOT go into Recovery mode yet.
From the command prompt, make sure you can see your device: fastboot devices
Then, run the following commands:
fastboot flash boot boot.img
fastboot flash recovery recovery.img
fastboot erase system
fastboot flash system system.img
At this point you have a clean install of 4.3 JSS15R.
Now go to Recovery mode and sideload the 4.4 OTA as you originally tried and it should work this time.
I followed these steps and was able to update to 4.4 without losing any data. YMMV
THIS! Internet hugs to you. You saved all my data. Had some video of the kids that I wouldn't be able to replace that I haven't transferred yet. Google has been useless in terms of offering help.
THank you!!