Hill is considered an ally of Richard Holbrooke, now the US envoy to Pakistan and Afghanistan, who is best known for brokering the Dayton Peace Accords.
Officials had said earlier this month that Hill was the leading candidate to replace Ryan Crocker as the most senior US diplomat in Baghdad.
He had earlier served as a negotiator in the crises in Bosnia and Kosovo, but is best known for his role in the North Korea talks.
Under a landmark agreement signed in 2007, North Korea agreed with its five partners - the US, South Korea, Japan, China and Russia - to scrap its nuclear programmes in exchange for energy aid.
But further negotiations deadlocked late last year over a dispute with North Korea over how to verify nuclear disarmament.
Last month, Hill admitted the North Korea talks had been "a pretty tough assignment" and that there had been "too many interruptions" in the negotiations.