World football's governing body told the Israeli FA last month to immediately suspend Fernandez because Qatari club Al Rayyan, whom he left in the middle of his coaching contract in 2005 to join Israel's Beitar Jerusalem, said he owed them 400,000 euros.
The Israeli FA told Fernandez he had to resolve his dispute with the Qatari club by March 4 and it confirmed on Monday that FIFA was satisfied the issue had been dealt with.
"FIFA has announced officially that all the restrictions imposed on Israel's national coach have been lifted... we wish Luis success in the upcoming challenges against Latvia and Georgia," said a statement on the IFA website.
Fernandez last week informed his employers that he had resolved the dispute with Al Rayyan but official confirmation arrived only on Monday.
"As I already said last week, I have resolved matters with FIFA in order to be with my team and now that the official confirmation has arrived we all need to concentrate on one thing, winning all six points in the upcoming games against Latvia and Georgia," the Frenchman said.
"Concurrently I will continue to manage my legal affairs in court in Geneva."
Israel will play two Euro 2012 home qualifiers later this month against Latvia and Georgia in Tel Aviv.
Get the best features, fun and footballing frolics straight to your inbox every week.
Thank you for signing up to Four Four Two. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.