Palacios, 30, is on the hunt for a new club after leaving Stoke at the end of last season and had been training with the Union for the past fortnight with a view to a permanent move.
With his trial ending last week, Curtin had earlier expressed interested in a potential deal but he has now revealed that the Honduras international did not show enough to earn the sizeable contract he was seeking.
“We’re not going to move forward with Wilson,” said Curtin. “He’s a player we respected a great deal -- a guy who played at the highest level. But in terms of fit right now and need, we’re not in the process.”
With a move to Philadelphia now ruled out, Palacios could be set to remain in English football with Bolton Wanderers, who have been linked with his signature since his Stoke departure [h/t Stoke Sentinel].
The experienced free agent’s father, Eulogio, even suggested last week that his son was close to joining the Trotters, telling Honduran outlet Diario Diez that he expected him to sign for a “second division” team.
“I do not think he is going to play in the United States because he will continue in England,” he said. “He has made a life there and does not think of moving away.
“I think he will accept the proposal of a second division team of England but he has not told us anything.”
Palacios, who has 95 Honduras caps, has struggled for form and fitness since making a £6 million switch from Tottenham to Stoke in August 2011 and failed to make a single first-team appearance for the Potters last term.
The two-time World Cup veteran did impress during previous Premier League spells with Spurs and Wigan Athletic, however, suggesting that he could prove a solid fee acquisition for Bolton, provided his wage demands are not too steep.