England Under-21s' nine-match winning streak was brought to a controversial end as Italy capitalised on the confusion surrounding Craig Dawson's disallowed goal to win their European Championship opener.
Having held the impressive Azzurrini at bay in the first half, the West Brom centre-back looked to have nodded the Young Lions ahead four minutes after the restart of the Group A clash in Tel Aviv.
England players ran off in celebration, the announcer gave the goal and even put Dawson's face on the Bloomfield Stadium scoreboard - only for referee Antony Gautier to chalk the header off to mass confusion.
An apparent push by Steven Caulker in the build-up looked to be behind the decision that left Stuart Pearce's side flabbergasted.
It was not Gautier's only contentious decision of the night. He waved away first-half penalty appeals from Alessandro Florenzi, before appearing to inexplicably change his mind on a spot-kick with less than 15 minutes remaining.
The Frenchman eventually adjudged Nathaniel Clyne's foul on substitute Manolo Gabbiadini to be outside the box but Italy's frustration soon turned to joy.
Lorenzo Insigne, the Azzurrini's best player, struck home the resulting free-kick to secure a 1-0 victory and end England's record unbeaten streak and run of 889 minutes without conceding.
Much of the talk in the build-up surrounded the fitness of Wilfried Zaha, who was only fit enough for the bench after an ankle complaint.
Winger Nathan Redmond made his debut in the absence of the injured Zaha and suspended Thomas Ince, while Jack Robinson deputised for Danny Rose, serving a one-match ban, at left-back.
England's early pressing caused the Azzurrini problems and Connor Wickham tested goalkeeper Francesco Bardi from close range after Marvin Sordell charged down a clearance.
The Italians, considered favourites for Group A by Pearce, soon kicked into gear, though.
Ciro Immobile was inches away from netting a 10th-minute opener when he beat Dawson to a through ball and sent a half volley just wide.
Moments later, Italy had another chance. Immobile played through Luca Marrone down the left and he sent a cross to the back post, where Florenzi's goalbound strike was blocked by Robinson.
Devis Mangia's side were on the front foot by this point and England's nerves were epitomised by right-back Clyne, who had to race back to clear his own wayward back header to Jack Butland.
A heavy touch prevented Jonjo Shelvey getting a shot away when they returned to the attack, before Insigne struck just wide of Butland's near post.
The Napoli winger was proving Italy's biggest threat and came close again in the 24th minute, playing a neat one-two with Immobile before delicately lifting the ball over Butland and, fortunately for England, the crossbar.
Jason Lowe struck just wide from distance once the Young Lions had composed themselves, before debutant Redmond fired over after wriggling free.
England were starting to impress but were getting caught out on the right flank - something that almost cost them with half-time approaching.
Insigne was allowed to break free down the left and sent an inspired ball across to Florenzi, who looked to have been brought down by Robinson in the box but referee Gautier disagreed.
England returned for the second half with renewed vigor and found the net three minutes after the restart, only for the offside flag to deny Wickham.
But a minute later it looked like the Young Lions had found the opening goal.
Shelvey sent in a corner that Caulker prodded forwards and Dawson met with a header that looped into the top corner.
England players went off in celebration that went on for a quite a while, before it became clear the goal had been disallowed for an apparent Caulker push on Matteo Bianchetti.
It led to mass confusion inside the stadium as Dawson was announced as scorer over the tannoy and shown on the big screen as play continued.
It was an incident that seemed to knock England, with Immobile firing wide before Fabio Borini forced Butland into an acrobatic save with a header from an acute angle.
However, the England goalkeeper was also shaky at times and was almost caught out immediately, hitting a clearance straight at Borini which the Liverpool striker could only put wide.
The attention was soon back on referee Gautier, though.
The Frenchman appeared to point to the spot after Clyne fouled substitute Gabbiadini, but then changed his mind and awarded a free-kick on the edge of the box.
Not that it mattered to Italy, though, as Insigne delightfully curled home the resulting set piece past Butland.
England pushed forward in the final 10 minutes and captain Jordan Henderson saw a free-kick saved in stoppage time, but it was not to be as Italy held out for three points.