This is causing an uproar in the Arab world, both within the territories and from outside.
Besides the scandal of Palestinian Arabs actually speaking to Israeli Jews, which is bad enough, it looks like this cooperation is going to help both Israel and a Palestinian Arab team to compete in the Mediterranean Games.
Both Israel and the Palestinian Arabs have been barred from participating in the Mediterranean Games, and this cooperation seems to make it easier for both to join in. The IOC, which had once been against allowing Israel to participate, is now supporting allowing both teams to compete.
Even though adding a Palestine team would help legitimize the Palestinian Arab cause, the price to be paid - allowing Israel to compete in the games - is considered way too high by the Arab world. Arabs would prefer that both teams be barred than to allow Israel to join.
Which is just one more piece of evidence that no one in the Arab world is really "pro-Palestinian." People who want to penalize Palestinian Arab legitimacy in international sports are not in any way "pro-Palestinian."
They are simply anti-Israel.
And it is further proof that while Israelis try to find "win-win" solutions, Arabs will not. They would rather have "lose-lose" if one of the potential winners would be Israel. They base their most basic decisions on irrational hatred of Israel. Their mentality remains zero-sum.
By the way, this 1996 article from the New York Times shows that fact checking was not a priority for that newspaper even then:
Although Atlanta will mark the first Palestinian participation in the Olympics, Palestinians have a long association with sports -- they were once among the Arab world's best boxers. And, according to Nahil Mabrouk, president of the Palestinian Track and Field Federation, the Palestine Olympic Committee was founded in 1931 and remained a member of the Olympic family until 1967, the year of the Six-Day War and the beginning of Israel's 26-year occupation.
In fact, the Palestine Olympic Committee that was formed in 1933 changed its name in 1951 - to the Israel Olympic Committee. It was recognized by the IOC in 1952.
(h/t E. ben Abuya for correct dates.)