Fielding a second-string lineup ahead of Sunday's MLS regular season finale, the Dynamo were ousted by the Panamanian side.
In need of a win or draw, the Dynamo (2-1-1) dropped a 1-0 decision to Arabe Unido (3-1-0). The result gave the Group 1 title to the Panamanian side and kept Houston from advancing to next spring's quartefinals.
Needing at least a draw Sunday at D.C. United to keep its playoff hopes alive, the Dynamo fielded a largely second-string squad in Panama. Defenders Bobby Boswell and Kofi Sarkodie were the only regular Houston starters in the starting lineup.
Arabe got its goal in the 61st minute. After Tyler Deric parried a save into the air, Jose Gonzalez nodded the rebound over the Houston goalkeeper and past a last-ditch clearance attempt by Mike Chabala.