Nabi ensured the Mexican wave made a comeback, that too within nine minutes, when he leaped over all to head in Mehtab Hossain's corner.
India went into the interval with a 2-1 lead.
But it was a different story in the second half. Immediately after resumption, Palestine equalised to make it 2-2. Hasam Abusalah heading in a corner in the 46th minute which was the first attack of the second half. The very next minute, Palestine were 3-2 up, Ashraf converting from the spot.
Arata Izumi made his debut for India in the 63rd minute coming on for Lenny Rodrigues. But two minutes later, Palestine made it 4-2; Ashraf completing his hat-trick as he went past his marker and slotted it home.
India�s first chance in the second half came in the 73rd minute but a Jewel Raja volley from the top of the box narrowly missed the mark.
National Coach Wim Koevermans did bring in more substitutions in the second half including local lad CK Vineet but Palestine held onto the lead.
Earlier, the AIFF Player of the Year Award was handed over to Syed Rahim Nabi by Wim Koevermans prior to the kick-off. Nabi, who was voted as the best Indian Player for 2012 by all Coaches of I-League teams was handed over a silver plaque and a Cheque of Rs. 2 lakh.