Canada had accused Qatar, which has been trying to burnish its international presence, of trying to buy the UN agency located in Montreal.
Canadian Foreign Minister John Baird said he received a call from Qatar's prime minister on Thursday.
"I'm going to be generous. I appreciate the call," Baird told The Associated Press in a telephone interview. "We were prepared to fight tooth and nail on this."
Qatar's embassy in Ottawa said yesterday in a statement that considering the "keenness" of Qatar to "preserve the close and historic friendship" between the countries and the importance that Canada attaches to keeping ICAO's headquarters in Montreal, Qatar decided to withdraw its offer.
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Losing ICAO would have been a blow for Canada and Montreal, the hub of Canada's aviation industry. ICAO employs 534 people and says it generates about USD 80 million annually for Montreal's economy. Its current headquarters were built in the 1990s at a cost of USD 100 million.
ICAO has been in Montreal since its founding in 1946. Qatar presented ICAO with an unsolicited offer in April to serve as the new permanent seat of the organisation beginning in 2016.
The proposal included construction of new premises, paying to move materials and staffers, and paying for all costs of staff terminations and severance packages, according to the UN agency.
Canadian officials said Qatar did not inform Baird about the bid despite him being in Qatar just days before.