McLeish admits he was baffled by the decision of Spanish linesman Juan Carlos Jimenez to give the Italians a free-kick which led to Christian Panucci's last-minute winner when the award should have gone in Scotland's favour.
The home side also felt aggrieved at being denied a penalty when Gianluca Zambrotta appeared to handle in the box after Luca Toni had given the Azzurri an early lead.
The Scots hit back anyway through skipper Barry Ferguson before being dealt a cruel sucker punch with seconds to go.
A draw would have meant relying on Ukraine defeating France next week or the less likely scenario of the Faroe Islands taking maximum points from Italy in the final round of matches for Scotland to defy all the odds to book their place at next summer's finals after all.
But McLeish insisted his players did not deserve their dream to end in such a cruel manner in front of 51,000 devastated fans at Hampden.
"We didn't deserve to lose today, there is no doubt about that," he said.
"I'm very disappointed with the decision that led to the second goal, it was a very poor decision. I can't understand why he gave a free-kick to Italy.
"I've seen it on the television - it's unbelievable. It wasn't the referee's call, it was the assistant who gave the free-kick.
"When his flag pointed in the direction of our goal, I was baffled, even at the time. When I see it again on TV, I can't even begin to change my mind on that opinion."
Referee Manuel Gonzalez also disappointed McLeish.
He said: "The big teams tend to get the decisions, the 50-50s, as we have seen today.
"We have to be brilliant to overcome that and we weren't brilliant today but I thought we were pretty good.
"You have to be absolutely exceptional to overcome that sometimes. Sometimes you'll get a referee that's not fazed by that but, today, I felt a lot of 50-50s went against us unfairly. But that's my opinion."
"Zambrotta put his hand up as well so why is it not a penalty? I haven't seen that one [on TV] so maybe I'm being unjust to the referee on that occasion. I'm not blaming the referee, it's one of those things. It's a fine line, it was very, very close."
McLeish was diplomatic with his response when asked whether he felt uncomfortable with a Spanish referee officiating the match, saying: "I think Gonzalez is a top referee and I don't want to say if I was comfortable or not. What can I do? UEFA chose him and I thought he did okay but a lot of decisions were unjust."
McLeish admits qualification would have been unlikely even if Scotland had managed to hold on for the draw and pinpointed a James McFadden miss with less than 10 minutes to go as the pivotal point in the match.
"It would have probably still have been a long shot had we drawn today," he said.
"If Faddy's chance goes in, it wouldn't have mattered. The draw wouldn't have been the worst for us but certainly a defeat was not deserved for the Scotland camp today.
"I'm really proud of the players for fighting back. They have shown before they can come back from a setback and they did it yet again.
"For the last 10 or 15 minutes, we had the Italians on the ropes. I really felt that we were going to get it. At Faddy's chance, my life flashed before me and I thought we were going to Austria and Switzerland.
"But it's a fine line. Italy are a good team, and we wish them luck, but I thought they got a little bit of luck today."