Organisers said on Thursday the voyage was scuppered when first Israel then Egypt raised visa problems for the Palestinians.
Fifty boats from eight countries are to set sail on Friday from Tel Aviv for a tour of ports in Israel, Egypt and Jordan, but the vessel flying the Palestinian flag will have to stay behind.
The first to raise problems was the Israeli military, said Palestinian skipper Mahfuz Kabriti. It initially refused to grant permits to him and another crew member.
When the permits finally arrived, it was too late to get them visas for Egypt - the Egyptians require a week to process the paperwork.
Five sailors from Gaza were to join the Sail for Peace from Tel Aviv to Port Said, Egypt, through the Suez Canal to the Red Sea port of Eilat in Israel and then to neighbouring Aqaba in Jordan.
Of the 50 boats, 32 are Israeli.
More than 500 sailors from abroad are to join the two-week trip, organisers said. It includes tours in Egypt and Jordan.
Kabriti said he decided to take part in the yacht rally when a longtime Israeli friend asked him to join his crew.
"[Palestinians] love sports, we love the sea and we love life. And we support coexistence between people in the region. That was our message, but we couldn't deliver it"
Kabriti came up with another idea: "We wanted to share in the event by entering a Palestinian boat with a Palestinian flag."
Kabriti said Palestinians like other people in the region "love sports, we love the sea and we love life. And we support coexistence between people in the region. That was our message, but we couldn't deliver it".
But the Palestinian crew will take part in the launching ceremony on Friday in an act of solidarity, he said.
Yachts joining the sail have come from Israel, the US, Britain, Germany, Turkey, Belgium, Holland and France.
Sailors participating include Israeli army veterans wounded at the Suez Canal during the 1973 war and an Israeli soldier who is recovering from a serious injury suffered in the current Palestinian-Israeli conflict.
One object is to promote tourism in the Red Sea area where Egypt, Jordan and Israel all have footholds, organisers said.