The former Masri coach arrived at the Libyan side last week and was expected to put pen to paper right away.
However, Ahli backed out of the deal as a result of Toulan's 'unreasonable conditions'.
"We decided not to sign him because his conditions were unreasonable," board member Wanis Al-Magrabi told the club's official website without further elaboration.
"Now we are looking for other candidates."
Former Zamalek assistant coach Toulan, who also took over Harras Hodoud and Egypt U-20 throughout his coaching career, has been unemployed for over a year since he left Port Said side Masri midway through last season.