WTA Tour players were unhappy that Anca Barna and Marlene Weingaertner had not been included in the German team despite meeting International Tennis Federation qualifying standards.
With the top 56 ranked players earning automatic entry into the Olympics, Barna and Weingaertner, ranked 46 and 52, qualified quite comfortably.
But the German Olympic Committee insisted on much stiffer criteria of reaching a semi-final of a grand slam or the final of a tier-one event, which neither player has met.
The WTA had considered withdrawing world rankings points from the Olympic competition due to begin next Sunday -- a move which many suspect would have prompted a players' boycott.
But the row was defused late on Saturday when WTA chief Larry Scott said they had opted not to withdraw the points.
But he warned they would not renew their Olympic agreement unless there was a 100 percent guarantee that in future all eligible WTA Tour players based on ranking would qualify.
Scott expressed "deep regret and considerable disappointment" over the German stance on Barna and Weingaertner which he described as "arbitrary and subjective."
He also drew a comparison with German male player Florian Mayer, saying the Germans had made an exception in his case.
But he said the WTA had decided out of "fairness and responsibility" not to prompt a possible boycott.
American Venus Williams won the women's singles title in Sydney and is defending her title in Athens.