No, they can return, but they are not identified by the Ministry of the Interior as Jews. It was a compromise of sorts.
What is the practical significance of this? I am a Reform convert. I knew there were problems with aliya for Reform and Conservative converts, but wasn't aware of the compromise.
I had given some thought to Israel for retirement. I wouldn't be looking for all of the help Israel gives to an immigrant, but I wouldn't want to not be considered Jewish, either.