Point guard Naama Shafir asked to wear a T-shirt under her jersey because Jewish modesty rules require her to cover her shoulders.
FIBA refused, saying regulations require all players to wear the same uniform. The Israel team as well as Jewish groups denounced the decision as insensitive.
But Moti Aksmit, a spokesman for the Israel Basketball Association, said Israel reached an agreement with FIBA that allows Shafir to wear skin-toned elastic sleeves.
FIBA Europe spokesman Sakis Kontos confirmed that Shafir was "given approval" to play with the sleeves.
Israel kicked off its campaign on Saturday against the Czech Republic.
Shafir, 21, plays basketball for the University of Toledo and the NCAA allows her to play with a T-shirt. Her college team also has made sure Shafir receives kosher food and doesn't have to drive or practice on Shabbat.
Shafir is the only Orthodox woman known to have received an athletic scholarship from a US Division I school.
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