The dispute came the same day Iran's girls' soccer team beat Papua New Guinea 1-0 after reaching a compromise on Islamic head scarves.
Iran's girls were finally able to concentrate on soccer in the six-team tournament. FIFA, the sport's governing body, agreed to let them wear a head covering, long-sleeved shirt and leggings. Fatemeh Ardestani scored two minutes into the second half.
At taekwondo, the Iranian delegation told the games' internal news service that Mohammad Soleimani didn't compete because of injury. Israel called the withdrawal politically motivated. The news service said Mohammad Soleimani was taken to a hospital.
IOC spokesman Mark Adams said it is "my understanding is that he was taken to hospital and unable to compete."
Soleimani did not appear at the medals ceremony alongside Gili Haimovitz of Israel.
"When Gili won the semifinal, we knew the Iranian was making the final," said Daniel Oren, head of the Israeli delegation. "Already, we know that the Iranians would not come. ... On one hand, we got the gold medal. It's every exciting for us. On the other hand, we would prefer winning by competing."
The World Taekwondo Federation confirmed Haimovitz's victory but did not elaborate. When contacted by The Associated Press, the federation spokesman denied a political motive. An Iranian official did not respond to calls to his cell phone.
Haimovitz, a 17-year-old high school student, won Israel's first gold medal at the Youth Games.
"Actually, I don't want to get into politics or that kind of thing," he said. "I don't know. I was a ready for a fight. If he came out or not, I don't care."
Alex Gilady, an IOC member from Israel who handed out medals for the competition, said he doubted Soleimani was injured and needed hospitalization. He insisted this was a strategy to ensure Iran didn't violate Olympic rules.
Gilady said that once Soleimani was deemed injured he would win the silver medal and would have "to stand on the podium and listen to the Israeli anthem and see the Israeli flag over the Iranian flag."
"They put him in an ambulance so at least they would not create a crisis that would have demanded further action," he added. "So it looks like everything is OK."
Iran does not recognize Israel and has a policy of not competing against its athletes. In recent years, it has used various tactics to justify withdrawal, and Iranian media have promoted this policy of avoiding competition with Israelis.
At the 2008 Paralympics in Beijing, Iran's wheelchair basketball team forfeited its game against the U.S. and withdrew from the games, avoiding a possible match against Israel. Iranian officials said the forfeit was prompted by a scheduling change.
At the 2004 Athens Olympics, Iranian Arash Miresmaeili, a two-time world judo champion, refused to compete against Israel's Ehud Vaks in the opening round. He acknowledged he was showing solidarity for the Palestinian cause.
The Youth Olympics is a 12-day competition featuring 3,600 athletes, aged 14 to 18 from 204 countries competing in 26 sports.