"Paraguay is interested in contributing to the expansion of diplomatic efforts in the region in order to achieve a broad, stable and sustainable peace in the Middle East", Castiglioni said, signaling that there's a new sheriff in town when it comes to Paraguay-Israel relations.
Cartes had traveled to Israel to inaugurate the new embassy in May.
Palestinian foreign minister Riyad al-Maliki claimed on Wednesday that he pushed President Benitez to reverse the move to Jerusalem.
Israeli Prime Minister Benjamin Netanyahu said Paraguay's move had cast a shadow on the countries' relations.
Abbas said Paraguay's move "was the result of the wise and vigorous Palestinian diplomatic efforts to explain the dangers of the transfer of embassies to Jerusalem [al-Quds]".
The surprising move is contrary to the push started by the United States to move embassies to Jerusalem in recognition of it as the capital of the Israeli state.
The Palestinian Foreign Ministry praised the reversal and Paraguay's "commitment to global law".
Guatemala then confirmed it would also make the shift to Jerusalem, and the Czech Republic reopened its honorary consulate in the city.
Palestinian leaders see East Jerusalem as the capital of their future state and said Trump's move disqualifies Washington as a peace mediator.
"It can not be a coincidence that as Paraguay announces this decision, the Palestinian Authority celebrates and declares it will open an "embassy" in Asunción".
PLO Secretary-General Saeb Erekat welcomed Wednesday's reversal: "We commend Paraguay's decision to act in accordance with its obligations under worldwide law by closing its embassy in Jerusalem and relocating it to Tel Aviv", he said in a statement. "This is also time for [President Donald] Trump's administration to realize that no peace-loving country will follow their decision to recognize Jerusalem as Israel's capital", he added.
Hours after the move, Palestinian Foreign Ministry announced that Palestine has made a decision to establish an embassy in Paraguay's capital, Asuncion, in appreciation and released a statement. "Only respecting global law and United Nations resolutions will help to achieve a just and lasting peace".
"One of the most complex components of the conflict is the status of Jerusalem, the statement continued, "and Paraguay "considers that it has to be addressed through negotiation by the concerned parties, within the framework of the relevant global organizations decisions".
However, the Palestinian Authority said it would "immediately" open an embassy in the South American country.