The former Leeds United and Aston Villa manager was dismissed after one year into his three-year contract with Al Ahli.
The club claimed that O'Leary had abandoned his job, despite club officials openly stating at the time that there had been a dismissal, and argued that FIFA lacked jurisdiction to hear the claim.
FIFA rejected both lines of defence and awarded O'Leary the full sum due under his contract.
The former Republic of Ireland player said: "It has taken a long time to deal with this matter but I am pleased that all issues have now been finalised.
"I would also like to thank Richard Bevan and the League Managers Association (LMA) as well as my outstanding legal team for their support and hard work in bringing my case to this very satisfactory conclusion.
"I hope my case provides reassurance to all managers and coaches working all over the world that there is a formal system in place that provides employment protection."
LMA chief executive Richard Bevan said he was delighted with the outcome.
"The added significance and wider impact of this process is the proof that FIFA has mechanisms in place which regulate worldwide employment issues," he said.
"It is extremely encouraging to know that the world governing body can provide a means of redress for managers and coaches at all levels seeking to establish their employment rights, wherever in the world they happen to work."