The U.S.A is free to make its own decisions without the consent and acceptance of Israel. These students were banned because they are part of an illegal occupying enterprise. Hate to break it to ya, but even the U.S.A considers the 1967 territories occupied and that includes East Jerusalem. Ever wonder why the U.S won't move their embassy to Jerusalem?
Protests in southern Syrian city after Druze cleric's death (AP)
from the article: Spain contest bans Israeli team affiliated with West Bank college