It is a compromise. To exclude all (or most) Muslim countries for not following the rules of the respective sports federations is impossible due to political reasons. So the present solution is accepted.
But it still leads to interesting conflicts. Last year, in football, a European team with an Iranian player had to play Tel Aviv. The Iranian player had to play acording to his contract with his club if his coach wanted him to play. If he would have played he would have been punished by his government when returning to Iran. So he got himself injured (officially).