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.
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