While I see why Sisko had to make that choice, political pressure notwithstanding, I disagree with it.

In any case of deciding the guardianship of a child, the first and foremost factor is the child's benefit - aka where and with whom does the child have the best chance of upbringing, including how the child feels where they should be.

In this case, Rugal wanted to stay with his foster parents. His benefit would've been to stay with them, and Sisko should've seen this. While yes, Rugal's father was indeed screwed over by Dukat's aide, his claim to guardianship was questionable at best. Would he provide for the boy to the best of his abilities? Sure. Would the boy have a happy, fulfilling life? Given his upbringing, no.

Unfortunately, politics played into it, and the Federation needed to score a gold star or two with the Cardassian government, and as such, the boy was handed over.