Philadelphia wants to raise school standards
The city's mayor, John Street, had attacked the privatisation scheme as "fantasyland".
The use of private companies to run state school systems has been pioneered extensively in the United Kingdom, with a number of failing local authorites being required to contract out a range of education services.
In Islington, north London, the running of 70 state schools in the borough is now the responsibility of a private contractor.
But in Philadelphia school privatisation plans put forward by Governor Mark Schweizer have been shelved, after opposition from the city's mayor.
"The mayor made it clear that the management of the central office by a private provider was something he couldn't live with,'' said a spokesperson for the governor.
Underachievement
The privatisation plan had envisaged education company Edison taking over the running of the Philadelphia school system.
Edison, which operates a chain of privately-run schools in the United States, was once linked with a contract to take over a state school in the United Kingdom.
The governor and mayor will now work on a plan to tackle problems in Philadelphia which will be familiar to inner-city schools in the United Kingdom - underachievement and teacher shortages.
The governor wants 60 of the least-successful schools to be taken over by private companies and community groups.
And it is anticipated that Edison could play a part in running individual schools.