Israel has withdrawn the nomination of Dani Dayan, a former West Bank settlement leader, as ambassador to Brazil, ending a seven-month standoff with Brasilia, which refused to accept his credentials.

Israeli Prime Minister Benjamin Netanyahu announced on Monday that Dayan would instead be appointed consul-general in New York, after months of tense exchanges between Israel and the South American country.

Dozens of former Brazilian diplomats and social movements signed letters supporting the Brazilian government's decision, saying that Israel's attempt to send Dayan, who himself lives in an illegal West Bank settlement, to Brazil was an affront considering the country's position on the Israeli occupation.

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Brazil also criticised Israel for the manner in which they attempted to conduct Dayan's appointment - by revealing his name publicly before contacting the Brazilian government.

Netanyahu responded to Brazil's protests with veiled threats of downgrading relations and not sending any ambassador to Brazil if they were to reject Dayan, Israeli media had reported.

It is unclear whether the Israeli prime minister will now consider a new option for that role.

On March 17, Israel's foreign ministry had said it was seeking a new choice for ambassador in Brasilia, to replace Dayan. But it quickly withdrew the statement, saying it was issued in error.

"I don't think that we folded. There was no choice," Dayan told Israel's Army Radio when asked about the new appointment.

Dayan will now replace Ido Aharoni as Israel's consul general in New York, in what Reuters news agency referred to as a post that focuses on Israeli outreach to American Jews and business sectors.

Dayan is one of the most vocal advocates of Israeli settlements in the occupied West Bank. From 2007 until 2013, he served as the chairman of the Yesha Council, the umbrella organisation of municipal councils for Jewish settlements in the West Bank.

In 2013 he resigned from the council in order to endorse Benjamin Netanyahu for prime minister, who subsequently appointed Dayan as chief foreign envoy of the Yesha Council, the only official representative of the Israeli settlement movement to the international community.

Source: Al Jazeera and agencies