The decision came after a meeting in Doha between FIFA president Gianni Infantino and Indonesian soccer federation president Erick Thohir.
Israel qualified last June for its first Under-20 World Cup. But the country’s participation in Friday’s scheduled draw in Bali provoked political opposition this month.
Indonesia is the world’s most populous Muslim-majority nation and does not have formal diplomatic relations with Israel, while publicly supporting the Palestinian cause.
Indonesia’s hosting was cast into doubt on Sunday when FIFA postponed the draw.
It is unclear who could now host the tournament, which was scheduled to be played in six stadiums in Indonesia. Argentina, which did not qualify for the tournament, is reportedly interested in hosting.
"A new host will be announced as soon as possible, with the dates of the tournament currently remaining unchanged," FIFA said.
The Indonesian soccer federation could be further disciplined by FIFA. A suspension could remove Indonesia from Asian qualifying for the 2026 World Cup, which starts in October.
FIFA seemed to remove all blame Wednesday from Thohir, the former president of Italian club Inter Milan — the team Infantino supports — and a former co-owner of the Philadelphia 76ers.
FIFA staff will continue to work in Indonesia in the months ahead, the governing body said, "under the leadership of President Thohir."
Soccer and public authorities in Indonesia agreed to FIFA’s hosting requirements in 2019 before being selected to stage the 2021 edition of the Under-20 World Cup. The coronavirus pandemic forced the tournament to be postponed for two years.
But Indonesian President Joko Widodo said Tuesday evening that his administration objected to Israel’s participation. He told citizens that the country agreed to host before knowing Israel would qualify.
Israel qualified by reaching the semifinals of the Under-19 European Championship. The team went on to lose to England in that final.
Israel plays in Europe as a member of UEFA after leaving the Asian Football Confederation in the 1970s for political and security reasons.
FIFA bills the men’s Under-20 World Cup as "the tournament of tomorrow’s superstars."
Diego Maradona, Lionel Messi and Paul Pogba are previous winners of the official player of the tournament award, and Erling Haaland was the top scorer at the 2019 edition.
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