MYSQL Transaction not rolled back

Question

I have the following stored procedure in Mysql 5.1.73-cll:

BEGIN
   DECLARE finished1 INTEGER DEFAULT 0;
   DECLARE cursor1 CURSOR FOR SELECT ... FROM table1 WHERE Id= 1;
   DECLARE CONTINUE HANDLER FOR NOT FOUND SET finished1 = 1;
   DECLARE EXIT HANDLER FOR SQLEXCEPTION
      BEGIN
        CALL Debug('SQLEXCEPTION');
        ROLLBACK;
        CALL Debug('Rollback executed');
     END;
   START TRANSACTION;
      INSERT INTO table2(...)  VALUES (...);  /* Statement 1*/
      OPEN cursor1;
  label1: LOOP
         FETCH cursor1 INTO var1, var2;
         IF finished1 = 1 THEN
            INSERT INTO table1(...) VALUES (...);  /* Statement 2*/
            LEAVE label1;
         END IF;
         UPDATE table1 SET ... WHERE Id=1;     /* Statement 3*/
         LEAVE label1;
         END LOOP label1;        
      CLOSE cursor1;
   COMMIT;
END

When I (on purpose) introduce a SQL error in Statement 3, and ensure that finished1 = 0, I expect Statement 1 to be rolled back, but it is not. By my Debug procedure, I know that the Rollback statement is executed. All tables are InnoDb. What am I doing wrong?