Palestine has very close ties with India and has always supported India's fight against terror.
In New Delhi, Palestine's envoy Adnan Abu Alhaijaa said that there were some politicians and parliamentarians attending the event.
The Palestinian side too had conveyed "deep regrets", assuring India that they will take serious cognisance of their ambassador's presence at the event.
Thousands of Pakistanis attended the mass protest rally organised by Saeed in the northern city of Rawalpindi on Friday, rejecting US President Donald Trump's decision to recognise Jerusalem as the capital of Israel earlier this month.
Palestine calls it unintended mistake.
But the statement issued yesterday by the Ministry of Foreign Affairs and Expatriates of Palestine looks like an attempt to present its envoy Walid Abu Ali as an innocent man who made an error of judgment in the realm of diplomacy.
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The ministry said the decision to recall the envoy to Pakistan immediately had been taken "under direct instructions of the President of the State of Palestine".
Palestinian Authority leader Mahmoud Abbas had already paid a "state visit" to India in May 2017 - his sixth visit to the country - where he was reassured that Modi would continue India's "unwavering support" to his cause.
Saeed, who was last month set free from a 300-day-long house arrest, has been repeatedly accused by the USA and India of masterminding the 2008 attacks on the Indian financial capital Mumbai that killed 166 people.
While regretting Ali's presence at the Saeed event, Alhaijaa said the envoy had gone for an Al Quds (Jerusalem) conference.
Saeed also referred to the controversial meeting between Kulbhushan Jadhav, an Indian national sentenced to death by Pakistan for alleged spying, and his wife and mother in Islamabad on December 25.
"The State of Palestine highly appreciates India's support in its tireless efforts to end the Israeli occupation and the establishment of an independent State of Palestine on the 1967 boarders with East Jerusalem as its capital and this is especially seen in the honorable position that India has taken by voting in favor of the resolution in the United Nation General Assembly last week", the spokesman said. "He (Walid Abu Ali) did not know terrorist Hafiz Saeed".
Addressing the rally which was attended by thousands of people, Saeed said India and Israel had formed a coalition that had the U.S. as a patron. In fact, when Saeed spoke, he asked people around him who he was... and then the Ambassador gave his own speech and left the stage. He will no longer be Palestine ambassador to Pakistan.