Ipswich midfielder Owen Garvan scored twice in the second half to rescue the Republic from 2-0 down in Madeira.
The Republic's hopes of qualifying for the 2009 European Championship ended before their final game.
Former Bolton man Ricardo Vaz Te put the hosts ahead before Manuel Fernandes rifled in a volley on the stroke of half-time.
Garvan's first came four minutes after the restart and he fired home the equaliser on 65 minutes.
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