"All parties have worked very hard to secure an outcome which would be commercially acceptable, but after many months of negotiations it is time to acknowledge we will not get there under the current proposal," Woodside Chief Executive Officer Peter Coleman said in a statement Tuesday.
Woodside had been in negotiations with Leviathan partners Avner Oil Exploration, Delek Drilling, Noble Energy Mediterranean and Ratio Oil Exploration to take in a 25 percent stake in license areas off the Israel coast.
Coleman said the decision to pull out of the agreement wasn't taken lightly.
"While Woodside's commitment to growth is strong, even stronger is our commitment to making disciplined investment decisions," he said.
Woodside had balked over Israeli tax policy, saying its profits from Leviathan should be tax-free.
Charles Davidson, Noble's CEO, said plans would continue to develop what he said was a "world-class asset for the benefit of all stakeholders."
Full-scale production is expected in late 2017. The initial development phase, which should start by the end of the year, will utilize an offshore production terminal to process 1.6 billion cubic feet of gas per day.