The game had finished 2-2 after regulation time after Brazilian Ricardo Oliveira and Matias Emilio Delgado's brace had been cancelled out by Marcelo Camacho and Amad Al-Hosani.
The game went into overtime and was equally as dramatic, former Brazil and AC Milan marksman Oliveira's second goal in the 114th minute nullified by compatriot Victor Simoes four minutes later.
And so came the penalty shoot-out, Camacho, Abdullah al-Muaiouf and Esmaeel Khamis Zayed all scoring for Al Ahli, while Oliveira's opening attempt was saved while team-mate Sultan Jarallah Al-Menhali netted his effort.
Jairo Palomino added some extra drama in missing his penalty for Al Ahli, with Neill next up to haul Al Jazira back into the game. But the Australian missed and it was left to Brazilian journeyman Simoes to seal a 4-2 victory on penalties for Al Ahli over the Asian team of billionaire Sheikh Mansour, who also owns newly crowned English champions Manchester City.
In Tuesday's other action, Iranian champions Sepahan beat close domestic rivals Esteghlal 2-0. Bruno Cesar and Mohsen Bengar both notched up first-half goals to ensure Sepahan advanced at Esteghlal's expense.
On Wednesday, Saudi Arabian clubs Al Ittihad and Al Hilal entertain Iran's Persepolis in Jeddah and the UAE's Bani Yas in Riyadh respectively.
Next week's highlight comes when 2006 FIFA World Cup™-winning coach Marcello Lippi leads out his new club, Chinese champions Guangzhou Evergrande, against FC Tokyo on Wednesday.
The Italian, who also won the 1996 UEFA Champions League with Juventus, was a shock replacement last week for Korean Lee Jang-Soo, who departed with Guangzhou top of the league and qualified for the Asian knock-out round.
Australia's Adelaide United will bid to extend their dream run from the play-offs as they host Japan's Nagoya Grampus next Tuesday, while 2010 winners Seongnam Ilhwa Chunma play Uzbek champions Bunyodkor.
Next week's other match is between South Korea's Ulsan Hyundai and Japanese champions Kashiwa Reysol on Wednesday.