Elie Bitton of Chicago had threatened to move his son's body from the cemetery in Skokie, the Chicago Sun-Times reported. Cpl. Albert "Doc" Bitton, an Army medic, was killed in Iraq in 2008.
Bitton erected the 10-foot flagpoles soon after his son's burial.
"It's anti-American and anti-POW," Bitton said. "That is my son. He gave his life for his country. . . . I told them they would remove the flag over my dead body."
The cemetery, operated by Dignity Memorials of Houston, notified Bitton several weeks ago that the two poles had to go. Illinois state regulators announced a compromise Tuesday.
Under the agreement, Dignity Memorials will pay to place a single flagpole over Corporal Bitton's grave. Bitton, 80, will remove most of the small U.S. and Israeli flags he placed among the flowers planted around his son's headstone.
"If I had my choice I'd have both poles, but I'm sick of this. I'm getting old, I don't sleep at night. I cry every day," he said. "It was a compromise."