Celtic flop wanted to take charge in time for the upcoming showdowns with Scotland in the Nations League and Euro 2020 play offs.
Berkovic found himself at the centre of a furore two years ago when he branded Israel's Arab politicians as "terrorists and spies", which led to legal action and a suspension from his own talk show.
Berkovic, who cost Celtic a then-huge £5.75 million when John Barnes snapped him up in 1999 before he moved on to Manchester City, was regarded as favourite to replace Andreas Herzog.
But a group of Israel's Arab players wrote to their FA to declare they would refuse to play for their country if Berkovic was appointed.Berkovic has now decided to withdraw.
Read more on dailyrecord.co.uk
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