FIFA previously suspended apartheid-era South Africa.
The Palestinian Football Association dropped its request to suspend Israel from international soccer during the FIFA Congress in Zurich on Friday.
The Palestinians wanted Israel ousted from FIFA because they allege Israel continued to allow five teams to play in occupied territories, have discriminated against its players and restricts player movements in the West Bank and Gaza.
Israel cites security concerns for its policies, particularly regarding movement in and out of Gaza, which is controlled by Islamic militant group Hamas.
Palestinian Football Association president Jibril Rajoub decided against the measure after speaking to some of FIFA's 209 members, who wanted to two sides to unite.
FIFA President Sepp Blatter had said he did not support the request and wanted the two sides to works out their issues before the impending vote.
"We, FIFA, cannot interfere into political territories,” Blatter said during the Congress.
"I am here to play football rather than play politics. I don't want to score goals, I want to end suffering," Rajoub told the congressional delegates.
Israeli prime minister Benjamin Netanyahu said Friday that an attempt to delegitimize Israel through FIFA would hurt the global soccer governing body.
“The attempt to hurt Israel politically will destroy FIFA, because it will start with Israel and then go to one country, and then the next,” Netanyahu said, according to the Jerusalem Post.
Rajoub shook hands with Israel Football Association chief Ofer Eini during the meeting after FIFA debated on how to proceed.
- Scooby Axson