The Daily Mail says desperate to deliver a 'marquee' signing for the club's poultry company owners Venky's, boss Steve Kean believed he was near a breakthrough after German side Schalke granted permission for an approach to their former Real Madrid striker.
Talks over personal terms for a two-year deal were provisionally pencilled in for Wednesday as Blackburn bosses anxiously waited to hear whether Raul would fly in to meet them.
But there were red faces at Ewood Park as their plans to sign one of European football's most illustrious names were scrapped without contact being made.
Raul's agent told Schalke general manager Horst Heldt in a phone call that the 34-year-old intended staying in the Bundesliga.
It left Kean back at square one in his efforts to pull off a major transfer coup after Ronaldinho, David Beckham and Luis Fabiano all rejected Blackburn's overtures.