The current player of the year in Israel was made available to the Parkhead club for around £2million.
However, after careful consideration, Celtic have decided they do not require another attacking midfielder, and Rafaelov has had to accept his chance of being reunited with Kayal has now gone.
Rafaelov's agent, Dudu Dahan – respon-sible for brokering the deal which brought Kayal to Glasgow – said: "Lior will not be going to Celtic. He will be going to another club.
"Celtic have told us they do not need a player for his position."
Belgian pair Club Bruges and Standard Liege are now expected to fight it out for the player who is out of contract in 12 months, while Neil Lennon continues to focus on finding the keeper, central defender and striker he has set as his signing priorities.
Tunisian centre-back, Yohan Benalouane – previously linked with Rangers – is the latest defender reported to be on the Hoops' list of possible targets.
The 24-year-old moved to Cesena in Italy last year from French club St Etienne, but the Serie A side have had problems paying the £850,000 transfer fee, and are now keen to offload him.
That could make the twice-capped Benalouane a bargain buy if Lennon believes he is the type of central defender he wants to bring in to freshen up a backline which already has two new recruits in Bosman signings Kelvin Wilson and Adam Matthews.
Dino Skvorc hopes he is still a player Lennon has in mind after the Croatian spent five days at Lennoxtown at the end of last year.
Interest in the Croatian – who can play in central defence or right-back – cooled when NK Varazdin asked for one million Euros for the 21-year-old.
His agent, Alan Petrovic, said: "We are waiting for Celtic to make their move."