Israeli Prime Minister Benjamin Netanyahu, who is also the foreign minister, ordered the closure of Israel's embassy in Paraguay on Wednesday hours after the Latin American nation said it had decided to return its embassy from Jerusalem to Tel Aviv.
The United States and Guatemala also moved their embassies to Jerusalem in May and Netanyahu has attempted to persuade other countries to follow their lead.
"Israel views with great severity the unusual decision by Paraguay that will strain the ties between the countries," a brief statement from the Prime Minister's office said.
"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 had said earlier in the day.
Former Paraguayan President Horacio Cartes had traveled to Israel to inaugurate the new embassy in May. He was replaced by Mario Abdo, also a member of the conservative Colorado party, last month.
New Paraguayan President Mario Abdo Benitez had opposed the switch even before taking office on Aug. 15.
"One of the most complex components of the conflict (between Israel and the Palestinians) is the status of Jerusalem," Castiglioni said, and Paraguay believes it should be negotiated between the parties involved — a position still held by most nations.
The about-turn prompted Israel to announce the drastic step that it was closing its embassy in Asuncion and warning that Paraguay's decision will worsen ties between the countries.
"Israel views very seriously Paraguay's exceptional decision which will strain the relations between the countries," said a statement from Prime Minister Benjamin Netanyahu's office.
The Palestinians, who were infuriated by the embassy moves, particularly America's, celebrated Paraguay's reversal.
Hours after the move, Palestinian Foreign Ministry announced that Palestine has decided to establish an embassy in Paraguay's capital, Asuncion, in appreciation and released a statement.
In the statement, the foreign ministry said that Paraguay had pledged two weeks ago to return the embassy to Tel Aviv during a visit by Foreign Minister Riad al-Malki to the country.
The statement said Malki "expresses his appreciation and gratitude to the Paraguayan president and his foreign minister for moving the embassy back and for their commitment to international law."
Israel considers Jerusalem its "eternal, indivisible" capital, and Palestinians want east Jerusalem as the capital of a future Palestinian state. Israel captured east Jerusalem in the 1967 Six-Day War and annexed it in a move that is not internationally recognized.
Most countries have maintained their embassies in Tel Aviv so as to not prejudge the outcome of peace talks between Israel and the Palestinians.
The Trump administration's decision to move the embassy flew in the face of that international consensus and it followed its recognition months earlier of Jerusalem as Israel's capital, another step the Palestinians and many other countries fiercely opposed.
Castiglioni acknowledged that "some Arab governments expressed their concern to us" after the embassy was shifted to Jerusalem.
