Palestine’s FIFA motion is part of wider efforts to challenge what activists say are racist Israeli policies.
The Palestine Football Association (PFA) has dropped its proposal at the FIFA Congress to suspend Israel from world football.
The PFA had accused Israel of hampering its activities and restricting the movement of players between the Gaza Strip and the Israeli-occupied West Bank.
Instead, the Congress voted in favour of a proposal to create a multilateral committee of observers to monitor the freedom of players and officials to move in and out of the occupied Palestinian territories.
“I decided to drop the suspension, but it does not mean that I give up the resistance,” Rajoub told the Congress.
“A lot of colleagues who I respect and I appreciate explained to me how it is painful for them to hear in this family about the issue of suspension.
“Tens of presidents of associations from Africa, South America, North America and Europe said to me that they don’t want to have the precedent of suspending an association.”
Israel Football Association (IFA) President Ofer Eini at one point called on his Palestine counterpart Jibril Rajoub to come on stage and shake hands in front of the Congress, something Rajoub initially declined in a tense standoff.
“I would very much want us to shake hands, and say we are launching a new road,” said Eini.
But Rajoub said he would only make such a gesture once a deal had been made to address the Palestine FA’s grievances.
They eventually shook hands once a proposal had been drawn up by FIFA President Sepp Blatter.
Israel cites security concerns for the restrictions and the country’s football association has argued that it has no control over such matters.
FIFA has been trying to settle the matter for two years and Blatter this month travelled to the region and met Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas.