The project, run by Jerusalem city council, has stoked controversy over the Israeli cable car's planned route, which passes through parts of mostly Arab east Jerusalem.
"To avoid any political interpretation, Suez Environnement has decided not to take part in this project," it said.
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Suez said its involvement in the project was limited to a feasibility study carried out by engineering firm SAFEGE, one of its subsidiaries.
"SAFEGE fulfilled a contract for Jerusalem municipality between June and November 2013, carrying out a feasibility study, from a technical perspective, on a public cable car system in Jerusalem," it said.
The Palestinians oppose any Israeli construction in the eastern sector, seized in the 1967 Middle East war, which they want as the capital of a future state.