Midfielder Diame, signed from Wigan Athletic, is one of three over-age players in the 18-man squad announced by the Senegal Football Federation on Saturday.
The Newcastle United pair of Demba Ba and Papiss Cisse were omitted after talks between the federation and their club manager Alan Pardew, the Senegalese news agency APS said.
Included in the squad is teenage Everton striker Magaye Gueye, who previously represented France at youth level but has switched his nationality with FIFA approval.
The Olympic tournament, which starts on July 26, is played at under-23 level.
Senegal are in Group A with hosts Britain, Uruguay and the United Arab Emirates.
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