Spain's Deputy Prime Minister Maria Teresa Fernandez de la Vega said Zapatero had received a request from several other Spanish political parties that he not meet Kagame because of Spanish legal proceedings against 40 Rwandan officers linked to the genocide.
He was "sensitive to that and responded" by deciding not to attend the meeting which was attended by UN Secretary General Ban Ki-moon, she told public television TVE.
Spain was represented instead by Foreign Minister Miguel Angel Moratinos at the first meeting of the MDG Advocacy Group set up last month by the United Nations to advance the Millennium Development Goals, which include halving extreme poverty by 2015.
Kagame and Zapatero are the co-chairs of the group.
The meeting had also been moved from government headquarters to a Madrid hotel while Zapatero met separately with Ban.
"It is not a big deal for us. It is Spain's internal politics," Rwandan Foreign Minister Louise Mushikiwabo told reporters on the sidelines of the gathering.
"We would like the Spanish people to get to know Rwanda's President Kagame better. He is not what we see him portrayed as."
In 2008 Spain's High Court announced its intention to prosecute 40 Rwandan army officers for genocide, crimes against humanity and terrorism related to events that took place between 1994 and 2000, including under Kagame's rule.
Kagame's then rebel Rwandan Patriotic Front in July 1994 ended the 100-day slaughter of at least 800,000 people, mostly from his Tutsi minority, by Hutu extremist militias and government troops.
But the Spanish judiciary accuses Kagame of fomenting the ethnic clashes in a bid to seize power.
The Rwandan officers are accused, among other things, of murdering nine Spanish missionaries and expatriates allegedly witnesses to massacres.
But Kagame is immune from prosecution because of his status as head of state. His government has vehemently rejected the accusations.
During an interview with Spanish news radio Cadena Ser, Ban refused comment on the Spanish legal proceedings against Rwandan officials.
He stressed that Rwanda was one of the "rare" African nations that have made "significant" progress in the fight against infant mortality.
The meeting in Madrid comes ahead of a high-level MDG Advocacy Group summit that will take place at the UN's headquarters in New York in September which Ban said Friday would be attended by 150 heads of state.
"This is an unprecedented number," he said, adding the Millennium Development Goals "can not be changed" despite the global economic downturn.
During talks with Rwandan leader Paul Kagame in Madrid, Ban "expressed his concerns" that the recent murder of opposition official Andre Kagwa Rwisereka and journalist Jean Leonard Rugambage has "caused political tensions" in Rwanda ahead of August 9 presidential elections, his spokeswoman said.
"He encouraged the Rwandan authorities to carry out a full investigation into these incidents," Ban's his spokeswoman Vannina Maestracci told AFP.
Rwisereka was the deputy president of the Rwandan Democratic Green Party. His nearly decapitated body was found dumped by a river on Wednesday.
Rugambage, who was critical of Kagame's government, was shot dead near his home on June 24.
The Rwandan Democratic Green Party is unregistered and has no candidate for next month's presidential elections. It has accused Kagame of blocking it from taking part in the polls.
EU foreign affairs chief Catherine Ashton on Friday urged the Rwandan authorities to "clarify the exact circumstances" of Rwisereka's "horrific killing and bring the perpetrators rapidly to justice.
Zapatero shuns meeting with Rwandan president
AFP - Spain's Prime Minister Jose Luis Zapatero shunned Friday a UN-backed meeting with Rwandan leader Paul Kagame after protests that his regime was linked to the 1994 genocide as the UN chief called for a probe into recent deaths in the central African nation.