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The International Olympic Committee (IOC) voted by 36 to 31 with three abstentions to recommend Rhodesia's expulsion in the face of mounting international pressure.
Two days ago the National Olympic Committees of Africa threatened to pull out of the games unless Rhodesia was barred from competing.
The African nations were demanding Rhodesia's expulsion on the grounds the country was an illegal regime and members of its team were not therefore British subjects.
Seven years ago Ian Smith declared Rhodesia's independence from Britain and then in March 1970 he announced the country was a republic - breaking its last link with the crown and ending any hopes of black majority rule.
The IOC issued Rhodesia's invitation to the West German games on certain conditions, which included appearing under their old colonial flag.
In a bid to appease the IOC, the Rhodesian team did arrive in West Germany with the Southern Rhodesian flag - made up of a Union Jack and a coat of arms on a blue background - and stood to attention when the national anthem, God Save the Queen, was played.
But comments by the Rhodesian team manager, Ossie Plaskitt, when the team arrived in Munich did little to smooth over the disagreement.
He was quoted as saying : "We are ready to participate under any flag, be it the flag of the boy scouts or the Moscow flag. But everyone knows very well that we are Rhodesians and will always remain Rhodesians."
The decision is a blow for the retiring IOC president, Avery Brundage, who had argued for Rhodesia's inclusion in the games.
He told reporters he was "shocked and surprised" by the decision. He continued: "The political pressures in sport are becoming intolerable."
Many of the Rhodesian athletes were in tears when they heard the news.
The 44-strong team of black and white Rhodesians will, however, be allowed to stay in Munich to watch the games.
In the Rhodesian capital, Salisbury, sports officials said the decision was a disgrace. A spokesman for the prime minister said there was "no doubt that the Olympics are in the hands of the politicians".
Rhodesia last took part in the Olympics at Tokyo in 1964, before its unilateral declaration of independence. It did not go to the Mexico games because the Mexican government put a harder interpretation on the United Nations resolution concerning passports than West Germany.
In the end, Rhodesia was excluded from Munich on a technicality. The athletes could not prove they had travelled on the correct documents after they had superficially, at least, complied with all the others terms imposed by the IOC.
Rhodesia was allowed back into the games in 1980 by which time it was known as Zimbabwe under Robert Mugabe's rule.
The games were overshadowed by a terrorist attack on the Israeli team, which left 11 athletes, five terrorists and one policeman dead. The Israeli team returned home but the games continued.
American swimmer Mark Spitz made most of the sporting headlines - taking four gold medals for individual events as well as three golds for relays.
The diminutive Soviet gymnast Olga Korbutt became an overnight sensation - taking three golds and a silver.
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