Swiss first division club Sion were also banned from signing players for the next two transfer windows over the same case.
CAS rejected appeals from Al Hadari and the club against the sanctions originally imposed by FIFA last year over the player's move to Sion in 2008.
"The sporting sanction imposed on the player (four months suspension) is confirmed," said CAS.
However, the court said it had reduced the amount of compensation Al Hadari must pay Al Ahli, one of Egypt's biggest clubs, from 900,000 euros to 760,000.
Football's world governing body welcomed the decision.
"FIFA considers this decision to be very important as it once again gives clear and strong support to the FIFA regulations and defends contractual stability in football," it said in a statement.
Al Hadari, who has won all of Africa's top honours at club and international level and was in goal when Egypt won each of the last three African Nations Cups, walked out on Al Ahli in February 2008.
He currently plays for Egyptian side Ismaily.
FIFA said the ban would start for the 2010/2011 season.
It means Al Hadari will miss Egypt's first four qualifying matches for the 2012 African Nations Cup.
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