The Honduras international, who made 16 Premier League appearances last season, has seen his proposed switch fall apart.
The Qatar club revealed Friday that the Honduras international had arrived in Doha to finalize the deal to take him to the Middle East but, without declaring the issue behind his failure to pass a physical, has now confirmed the agreement's collapse.
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The Qatar Stars League club wrote on Twitter: "Qatar Sports Club overlooked to sign with Honduras national team player Wilson Palacios because he didn't pass the medical examination."
Palacios joined Stoke from Tottenham in August 2011 but has been hampered by injuries and appears to be surplus to requirements under Mark Hughes.
The 29-year-old made only 16 Premier League appearances for the club last season, though he did feature for Honduras in the group stage of the World Cup.