As soon as news of his cancellation flashed on screens, attendees began messaging each other.
“I was expecting it and it creates some relief because the security here has been very annoying. He is a hate figure,” Ahmad Hafiz Ibrahim, a leading banker, told Reuters.
Israel's presence at the annual summit in the UAE, which like other Arab states has no diplomatic relations with Israel, evoked anger across the Arab world.
Netanyahu, a right-winger and prime minister from 1996 to 1999, is loathed across the Arab world for opposing Palestinian statehood.
Many leaders also blame him for bringing the Middle East peace process to its knees when he was prime minister.
"The raising of the Israeli flag on UAE soil and allowing the Zionist delegation to enter the country is a form of normalisation with an enemy who has no regard for any Arab or Muslim"
The Committee Against Normalisation of Relations with Israel, UAE
Netanyahu was due to arrive on Monday with an 80-member delegation. His ministry said he had decided to stay in Israel for talks on the state budget.
The Israeli newspaper Ha'aretz reported on its Web site the trip was cancelled on the recommendation of security officials.
“His absence will ease things to some extent, but there will still be an official Israeli delegation coming to the country for the first time and this will have an impact on the Arab street,” said Gulf-based political analyst Mughazy al-Badrawy, Reuters reported.
The UAE's Committee Against Normalisation of Relations with Israel, a non-official body which counts as members academics and former government officials, called for an assurance that Israel's attendance would not lead to normalisation of relations.
“The raising of the Israeli flag on UAE soil and allowing the Zionist delegation to enter the country is a precedent in the UAE's history and a form of normalisation with an enemy who has no regard for any Arab or Muslim," it said in a statement.