India have dropped their case against Australia's Brad Hogg, who was accused of making offensive remarks to Anil Kumble and Mahendra Singh Dhoni.
Hogg no longer faces a charge under the ICC code of conduct
The decision was taken during a meeting in Perth between opposing captains Kumble and Ricky Ponting.
Hogg, 36, had been due to face a disciplinary hearing after a complaint by India team manager Chetan Chauhan.
"It was just one of those incidents, probably in the heat of the moment. We now need to move on," Kumble said.
"Cricket is larger than any individual, so it is important that we forget about what happened in Sydney, which had some bad memories and incidents.
"In view of that, we have decided as a team to withdraw the charge made against Brad Hogg."
Mike Procter, match referee for the series, described the decision to drop the charge against Hogg as a "wonderful gesture by India, showing what sportsmanship they possess in the way they play the game".
He added: "As far as we are concerned, with the charge withdrawn, the case is dismissed and the matter is now closed.
"It's all behind us now, so we can get on with cricket."
Hogg also welcomed India's decision, saying: "It's much appreciated by myself and the Australian cricket team.
"Cricket would like to move forward and hopefully any future games between India and Australia are going to be close contests, good viewing for the spectators and played with much enjoyment by the teams."
Captains Ponting and Kumble met up ahead of the third Test
The move will in part clear the air ahead of the third Test, which starts on Wednesday with Australia holding a 2-0 series lead.
But the controversy continues concerning the three-Test ban imposed on India spinner Harbhajan Singh by Procter for an alleged racial slur directed at Australia's Andrew Symonds during the second match in Sydney.
When the ban was imposed on 6 January, the Board of Control for Cricket in India described it as "totally uncalled for, unjustified and patently illegal" and an appeal was quickly lodged on Harbhajan's behalf.
There were fears the team could abandon the tour but last Saturday the BCCI confirmed that it would continue irrespective of the outcome of the appeal.
The hearing will take place following the end of the current series on 29 and 30 January and Harbhajan can continue to play Test cricket in the meantime.
MV Sridhar, media manager for the Indian team, dismissed suggestions that the charge against Hogg had been dropped in the hope that Australia would reciprocate.
"This has not been done as something like an exchange offer or any such thing, nor was this decision taken with any expectations from the other side on Harbhajan," he said.
"There is no thinking that this was done in anticipation of a favourable result in Harbhajan's case."
Ranjan Madugalle, the ICC's chief match referee, has reminded the two captains of the need to ensure the third Test is played in the right way.
"Ricky and Anil understand and agree that the interest of the game is paramount and that it should always be played in the correct spirit and with mutual respect between opponents," he commented.
"The two captains know they are role models for millions of people and are aware of their responsibilities in projecting the game in a positive way.
"I am confident that after meeting with the two captains, we can all expect to watch an entertaining game of cricket played in a great spirit between these two fine teams."