Spanish airline Iberia says it has found that the "Palestine comment" allegedly made by one of its pilots, was misunderstood.
The airline investigated complaints that the captain of a flight arriving in Israel announced he was "landing in Palestine".
Iberia found the captain adhered to the standard format, naming only the airports of origin and destination.
Passengers might have confused similar sounding words, the airline said.
Passengers said the pilot made the announcement mentioning Palestine in Spanish, and then said in English the plane was about to land, without mentioning Palestine or Israel.
During the subsequent investigation by the airline, crew members and several Spanish-speaking passengers confirmed that the announcement, given first in Spanish and subsequently in English, was "… we're now descending to land at our destination, Tel Aviv…".
The airline believes the confusion could have been caused by the similar sound of the Spanish words "destino", meaning "destination", and "Palestina".
"Both the company and the crew regret the misunderstanding and that some of our customers could have been offended by it," the airline said in a statement.
The incident happened as the Iberia Airlines flight 3316 approached Tel Aviv's Ben-Gurion airport on Wednesday, Israeli media reported.
One Israeli passenger, named only as Lior, told Israel's Channel 2 TV: "We were just in shock, I don't understand why he said that.
"We live in the State of Israel and he should have said 'Israel', he didn't absentmindedly say it in English, it was intentional."
Another passenger wrote a letter of complaint to Iberia, saying: "My family and I were terribly offended. It was not at all acceptable and has done a disservice to your company."
Passengers took exception to the pilot's alleged remark because of its implicit non-recognition of the State of Israel.
The land which comprises Israel had been known as Palestine from Roman times. It became British Mandate Palestine following the collapse of the Ottoman Empire in World War One until the Mandate expired and Israel declared independence in 1948.
Since then, ideological opponents of the Jewish state, among others, have continued to apply the historic name of Palestine to the area which became Israel.
Israel and the Palestinians officially back a two-state solution to their conflict, with a Palestinian state emerging alongside Israel, but years of on-off peace talks have so far been unsuccessful.