We present the structural and magnetic properties of Zn(0.95-x)Co(0.05)Al(x)O (x = 0.0 to 0.1) nanoparticles, synthesized by a novel sol-gel route followed by pyrolysis. Powder X-ray diffraction data confirms the formation of a single phase wurtzite type ZnO structure for all the compositions. The Zn(0.95)Co(0.05)O nanoparticles show diamagnetic behavior at room temperature. However, when Al is co-doped with Co with x = 0.0 to 0.10 in Zn(0.95-x)Co(0.05)Al(x)O, a systematic increase in ferromagnetic moment is observed up to x = 0.07 at 300 K. Above x = 0.07 (e.g. for x = 0.10) a drastic decrease in ferromagnetic nature is observed which is concomitant with the segregation of poorly crystalline Al rich ZnO phase as evidenced from TEM studies. Theoretical studies using density functional calculations on Zn(0.95-x)Co(0.05)Al(x)O suggest that the partial occupancy of S2 states leads to an increased double exchange interaction favoring the ferromagnetic ground states. Such ferromagnetic interactions are favorable beyond a threshold limit. At a high level doping of Al, the exchange splitting is reduced, which suppresses the ferromagnetic ordering.