  Incoherent $\eta$ photoproduction on the deuteron is studied with the main
emphasis on the role of final state interactions. In addition to the previously
studied mechanisms of $NN$ and $\eta N$ rescatterings, the role of an
intermediate pion exchange is considered in detail, where first a pion is
photoproduced on one nucleon and then rescatters into an $\eta$ meson on the
other, the spectator nucleon. It is found, that the role of this pion mediated
contribution is comparable in size to that of $\eta N$ rescattering. Results
for total and semi-inclusive differential cross sections and associated
polarization observables are presented. In particular polarization observables
show a significant sensititvity to final state interactions.
