Observer-based fault detection and isolation (FDI) filter design method is a model-based method. By carefully choosing the observer gain, the residual outputs can be projected onto different independent subspaces. Each subspace corresponds to the monitored structural element so that the projected residual will be nonzero when the associated structural element is damaged and zero when there is no damage. The key point of detection filter design is how to find an appropriate observer gain. This problem can be interpreted in a geometric framework and is found to be equivalent to the problem of finding a decentralized static output feedback gain. But, it is still a challenging task to find the decentralized controller by either analytical or numerical methods because its solution set is, generally, non-convex. In this paper, the concept of detection filter and iterative LMI technique for decentralized controller design are combined to develop an algorithm to compute the observer gain. It can be used to monitor structural element state: healthy or damaged. The simulation results show that the developed method can successfully identify structural damages.