Paraguay will return its embassy in Israel back to Tel Aviv, reversing a contentious decision months ago to move the diplomatic site to Jerusalem.
"Paraguay wants to contribute to an intensification of regional diplomatic efforts to achieve a broad, fair and lasting peace in the Middle East," Foreign Minister Luis Alberto Castiglioni said on Wednesday.
In response, Israel announced it will close its embassy in Paraguay and recall its ambassador, the Haaretz newspaper quoted Prime Minister Benjamin Netanyahu's office as saying.
The Palestinians, meanwhile, will "immediately" open an embassy in Paraguay, Foreign Affairs Minister Riyad al-Maliki said, according to the official news agency Wafa.
Maliki hailed Paraguay's change of mind as "a new Palestinian diplomatic achievement".
Paraguay's former president Horacio Cartes traveled to Jerusalem to inaugurate the embassy in May. But Cartes' successor, Mario Abdo Benitez, also a member of the conservative Colorado party, took office last month and reversed the decision.
In December, US President Donald Trump recognised Jerusalem as Israel's capital, reversing decades of American policy and upsetting the Arab world and Western allies. It opened a new embassy in the city on May 14. Two days later, Guatemala also opened its embassy in Jerusalem.
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