Israeli Prime Minister Benjamin Netanyahu backed down on Monday from his attempts to appoint a former settler leader as ambassador to Brazil, which Latin American country has refused to accept since August.
Netanyahu "decided to appoint Dani Dayan as consul general in New York. He will replace foreign ministry career official Ido Aharoni, who is completing his term," the prime minister's office said in a statement.
This disagreement soured relations between Israel and Brazil for nearly eight-month standoff. Brazil did not accept the nomination of the former head of the main West Bank settlements organisation who opposes a Palestinian state.
The previous Israeli ambassador stepped down in December.
Netanyahu had refused to reconsider the nomination, insisting that Dayan was the appropriate appointee and the only one Israel would be offering Brazil.
On March 17, Israeli Foreign Ministry published a tender for the position, signalling it was dropping Dayan's nomination, only to swiftly retract it as an "unfortunate bureaucratic mistake."
Diplomatic sources said on Monday that the tender would most likely now be reissued.
Dayan's new appointment was warmly welcomed by Deputy Foreign Minister Tzipi Hotovely as "an important statement to the world" that Israel stood behind a settler "as a faithful and worthy representative of the state".
Dayan was born in Argentina and moved to Israel in 1971, aged 15.
He headed the Yesha Council of Jewish settlements in the occupied West Bank between 2007 and 2013.
Brazil recognised the Palestinian state in 2010. Jewish settlements in the occupied territories are considered illegal under international law.