Members of the Palestinian squad are split between the West Bank and Gaza and often unable to move from one territory to the other due to Israeli security restrictions.
At the FIFA Congress held in Mauritius in May, football's governing body called on Blatter to "try to improve the situation of football in Palestine."
On Sunday, Blatter urged Israel to remove the travel restrictions and give greater respect to Palestinian athletes, saying that the current situation violates FIFA's charter.
"I'm on a mission... to transmit to the political authority in Israel the problems that you are facing here," Blatter told an audience at Al-Najah University in the West Bank city of Nablus.
Blatter and Rajoub near separation fence (Photo: EPA)
Kicking ball in Ramallah (Photo: Reuters)
The crowd included Palestinian Prime Minister Rami Hamdallah, who praised Blatter for his contributions to global and Palestinian sports. Blatter received an honorary PhD in administration from the university on Sunday.
"I'm a global citizen but my heart beats for Palestine," said Blatter, adding he would invite Mohammed Assaf, the Palestinian singer who won the "Arab Idol" reality show, to sing at the World Cup in Brazil next year.
Rajoub slams Israel's 'racist policy'
Blatter began his visit in the northern West Bank city of Tulkarem, where he inaugurated a new $500,000 football pitch sponsored by FIFA. He was greeted by folk dancing and flowers carried by young girls in traditional Palestinian costumes.
Visit to Tulkarem (Photo: AP)
While Blatter sounded positive notes, telling the crowd that soccer "shall give hope, hope for you, hope for Palestine," the president of the Palestine Football Association was more critical.
"(Blatter) is here to dissolve the Israeli occupation's siege on Palestinian sport," Jibril Rajoub said. Later, during a speech at An-Najah University, he claimed "there should be no place (in FIFA and the Olympics) for those who continue their racist policy."
Rajoub said Blatter would meet Israeli officials this week and convey the FIFA Congress' call for Israel to ease restrictions on Palestinian players. The Israeli Football Association said it wouldn't comment until it had met Blatter.