The proposal will now goes to the Cabinet Committee on Economic Affairs (CCEA) which gives final nod.
The changes effected by the Etihad will mean that it gets only two board memebership instead of three, Jet owner Naresh Goyal gets veto power and the Jet Airways' board will take a final call on all matters.
The agreement between the two airlines envisages Rs 2,058 crore investment by Abu Dhabi's Etihad for 24 perccent stake in Jet Airways.
The two companies had to rework the shareholder agreement substantially due to earlier questions over "effective control and ownership" of Jet, raised by FIPB and market regulator Sebi.
When the final call is taken, Goyal will have 51 percent stake in Jet; Etihad 24 percent and the rest will held by others.
This was the most important approval and the Cabinet discuss the nod for the equity deal, so that the bilateral air services agreement between India and Abu Dhabi get cleared by the Cabinet soon.
"The (deal) has been cleared by the FIPB with minor changes to the language. All issues raised by civil aviation ministry have been resolved. Now the deal is expected to go to the Cabinet Committee on Economic Affairs (CCEA), but that will happen when a cabinet note is circulated by the finance ministry," Civil Aviation Minister Ajit Singh told reporters after the FIPB meeting.
"The minor changes in the language is that English laws will be used for arbitration. Jet would still have to take approval of civil aviation ministry even after cabinet nod for any future changes to shareholders agreement under the Aircraft Act 1934," the minister said.