The 29-year-old Sindhu went down 13-21, 21-16, 9-21 in a nearly hour-long clash.
Madrid midfielder Fede Valverde opened the scoring with a low deflected free-kick after 50 minutes and substitutes Brahim Diaz and debutant Endrick struck late on.
At FIFA's congress in Bangkok in May, the Palestinian Football Association called for its Israeli counterpart to be suspended and for Israeli teams to be banned from FIFA events.
Kai Havertz opened the scoring to put Mikel Arteta's men ahead in the 38th minute of the game before Rice was given the marching orders following a second yellow card.
The 36-year-old based his decision on his desire to shape the budding talents of the nation in a mentorship role. Sreejesh expressed the same in his letter to Hockey India