JERUSALEM — The Palestinians dropped their bid to suspend Israel from international soccer competition at the last minute Friday, and agreed to instead form a committee of the sport’s governing body, FIFA, to handle their complaints of racism and discrimination.

Jibril Rajoub, president of the Palestine Football Association, called for a vote at FIFA’s annual congress to ask the United Nations to determine whether five teams from settlements in the occupied West Bank should be allowed to continue to play in Israeli leagues. But FIFA’s president, Sepp Blatter, blocked that initiative, and said the new committee would also decide how to handle the contentious question of the settlement teams.

In an emotional speech, Mr. Rajoub said he had been persuaded to abandon the demand to suspend Israel by fellow delegates to the FIFA congress, particularly one from South Africa, who said the vote would be “painful” for the conclave scarred by scandal after Wednesday’s dawn arrest of top soccer executives. He accepted Mr. Blatter’s proposal for a “peace match” between Israeli and Palestinian teams, but also said it “does not mean I give up the resistance.”

“I think it’s time now to raise the red card for racism, humiliation and discrimination in Palestine and everywhere,” Mr. Rajoub said from the podium, pulling an actual red card from his coat pocket.