The Palestinian Football Association has dropped a proposal to have Israel suspended from FIFA.
A vote on the issue was expected to be held at the FIFA Congress at the Hallenstadion in Zurich on Friday.
Delegates from Palestine had previously pushed for a vote on a suspension unless Israel removed five teams based in disputed territory from its national league.
The five teams - Ma'aleh Adumim, Ariel, Kiryat Arba, Bik'at Hayarden and Givat Ze'ev - play in Israel's lower divisions.
The Palestinian Football Association has also accused Israeli counterparts of allowing "humiliating treatment at the border by relevant Israeli authorities" and "violent acts by Israeli security forces during football matches… under the authority of the Palestinian National Authority".
Speaking at the Congress, president Jibril Rajoub said: "I look forward to the day in which Palestinians, like many others, are enjoying the benefits of the game.
"Let us look forward and be optimistic. I count on you to vote now, and I thank those who convinced me to drop the suspension [of Israel]. The German president [Angela Merkel] spoke to me... this affected me."
Responding to Rajoub's words, Israel Football Association president Ofer Eini said: "I don't want to point any fingers at the Palestinian side. Let's leave it to the politicians to do politics. Let's join forces.
"I want us to work together, I want us to co-operate, hug and embrace each other, the differences – if we have any – we should be able to resolve by listening to each other. Everyone is sitting here as friends. There are always disputes.
"We propose a joint committee between Israelis, Palestinians and FIFA and I hope we are able to resolve all the problems as they arrive… the beginning of the process that will bring peace to our peoples.
"Football is a uniting element, not a dividing element. Football is a bridge for peace. I call upon you to join me on the stage and shake my hand."
A handshake on stage did not materialise but - after further Palestinian protestations - an amendment was passed to create a three-party working group to solve issues between the two authorities, introduce football IDs for Palestinian players and officials to have freedom of movement and have a dedicated person at check points to facilitate and speed up the process.
Following the passing of that amendment, Mr Rajoub and Mr Eini did finally shake hands off stage to widespread applause.
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