I was an AR in a Boys U14 Division 5 match the other day.

When White played an errant ball to Red’s goalkeeper, who was well within his own penalty area, the ‘keeper reached down, stopped the ball from going across the end line with his hand, stood back up, then picked up the ball. I believed this to be an offense, as I explain below, but I didn’t flag for it, as I’ve been chastised by CRs in the past for calling what they considered to be trifling, obscure offences, and I believe that’s what my CR would have thought, especially considering the low skill level of the teams playing.

But I’d like to make sure that my interpretation is correct that this action violated the Law 12 stipulation that “An indirect free kick is awarded to the opposing team if a goalkeeper, inside his own penalty area, commits any of the following four offences: … touches the ball again with his hands after he has released it from his possession and before it has touched another player.”

Is “possession” in this context defined as actually holding and supporting the ball with the hand(s), or is a mere deliberate, controlling touch with the hand(s) sufficient for “possession,” as happened in this case?

USSF answer (April 17, 2011):
It may be obscure and it may be trifling, but it is the Law, clearly expressed in Law 12 and interpreted in the USSF publication “Advice for Referees on the Laws of the Game” for players, coaches, referees, and older referees who never read the Laws:

After relinquishing control of the ball, a goalkeeper violates Law 12 if, with no intervening contact, touch or play of the ball by a teammate or an opponent, he or she handles the ball a second time.  This includes play after parrying the ball. Referees should note carefully the text in the IGR, which defines “control” and distinguishes this from an accidental rebound or a save.

In judging a second touch with the hands by the goalkeeper, referees must take into account tactical play which may seem unsporting but is not against the Laws of the Game or even the spirit of the game. If a goalkeeper and a teammate play the ball back and forth between them, the goalkeeper can handle the ball again legally so long as the teammate has not kicked the ball to the goalkeeper.  However, of course, an opponent can challenge for the ball during such a sequence of play.  The players are “using” but not “wasting” time. The referee’s goal under these circumstances is to be close enough to manage the situation if the opposing team decides to intervene.

The “second possession” foul is punished only by an indirect free kick from the place where the goalkeeper handled the ball the second time*. Please note: A goalkeeper may never be punished with a penalty kick for deliberately handling the ball within his or her own penalty area, even if the handling is otherwise a violation of another restriction in Law 12.

In the strictest sense you were correct in your interpretation, but you did well in not raising the flag. There are mitigating reasons why a non-call is appropriate.  (1) The first touch of the ‘keeper meant to stop the ball from advancing,  Although this is not parrying in the strictest sense it had the same purpose.  (2) This appears to be a trifling offense.

We recommend that the referee warn the goalkeeper on the first occurrence and punish the act if it is repeated.