The 47-year-old has been handed a rolling contract with Fulham after steering them to safety as caretaker boss.
He said: “Obviously it is disappointing to not be taking Northern Ireland to the European Championships.
“But having discussed this at length with the chairman and the board, I understand the importance of focusing solely on the task ahead.”
He continued: “During my last month or so at Fulham I became increasingly enthused by working daily with players on the training pitch, and the satisfaction that I felt at seeing the end result on a weekly basis.
“The club has an incredibly professional infrastructure worthy of its Premiership status and it is my aim to finish higher than we have before, and to bring the success that the chairman and the supporters deserve for their continued commitment.
“I believe that the trust placed in me at this time needs to be repaid with 100% commitment.
Sanchez added: “Northern Ireland will be a great job for someone and I leave the team in good shape with them at the top of their Euro 2008 qualifying group.
“I wish them all the best for the future. They’re disappointed but I hope they understand my actions.”