The withdrawal of the defamation suit against Isi Leibler by Rabbi Israel Singer, now chairman of the WJC’s policy council, ends a two-year saga that brought into public view a spat between two Jewish communal leaders, exposed financial mismanagement at the WJC and tarnished the reputation of the 70-year-old organization.

The WJC announced in an internal newsletter last week that its steering committee “is withdrawing its lawsuit against Isi Leibler without prejudice and takes Leibler at his word that he will cease his ‘war’ and other agitation against the organization and its leadership.”

The move came days after the Executive Council of Australian Jewry, an Australian group that is affiliated with the WJC, announced it was quitting the international organization. That followed a warning by the Australians several weeks ago that they would quit the organization unless WJC leaders in New York dropped the lawsuit by July 25.

Leibler, a former senior vice president of the WJC who is a native of Australia, said he feels vindicated — as he did when the New York state attorney general’s report on the WJC came out six months ago.

That report found that the congress lacked “appropriate financial controls” and made “inappropriate disbursements” to top WJC officials, including $300,000 to Singer. But it did not find any criminal misconduct.

In an interview with JTA, Leibler suggested that the filing of the defamation lawsuit against him by WJC leaders in New York — WJC’s president, Edgar Bronfman; Singer; and the group’s secretary-general, Stephen Herbits — was a case of hubris gone overboard.

“Arrogance and rage led them into this irrational libel suit, which simply drew attention to everything and made this whole scandal continue,” Leibler said. “I just hope that the World Jewish Congress has learned a lesson, and I hope they find new leaders and implement the reforms of the attorney general.”

Before the release of the attorney general’s report, Singer had accused Leibler of using “McCarthyite tactics in a situation where he had no substance.” Reached by telephone Wednesday, Singer declined to comment.

The lawsuit against Leibler — whose 12-page memo two years ago set off the controversy with questions about the group’s governance and financial management — was dropped without fanfare.

Other WJC officials in New York declined to discuss the matter with JTA. A statement by Herbits suggested that the organization wants to shift its focus away from internecine bickering toward matters of greater substance to the Jewish people.

“At this time of increased peril to Israel and the Jewish people, it is time to focus on the organization’s critical work on behalf of Jews and Jewish communities around the world,” Herbits said in the statement. “Jewish communities around the world are united by their support for Israel, the commitment to seeing the safe return of their soldiers and the fight against terrorism. That is our united focus; anything else is secondary.”

By many accounts, the WJC has its work cut out for it.

Aside from the unknown number of donors put off by the allegations, counter-allegations and, finally, somewhat damning report by the New York State Attorney General's office, the organization's key leaders must emerge from the shadow of this episode.

Singer was forced to resign his position as chairman of the WJC's board, return more than $300,000 in inappropriate disbursements-including personal expenses he charged to a WJC credit card and organizational funds he used to make automobile lease payments for family members-and relinquish all financial managerial roles at the congress.

Herbits still is remembered for a profanity-laced interview he gave last year to New York Magazine, in which he alleged that leaders at other Jewish communal organizations are engaged in illegal activity. Herbits did not name names.

Grahame Leonard, president of the Australian Jewish organization, which had withdrawn from the WJC, said Australian Jewry would not be so quick to return to the WJC.

“I’m more than happy at the decision” to drop the lawsuit against Leibler, Leonard said, “but it does not mean we will automatically return to the fold. We made it very clear that we stay out until we are sure there is fair and proper governance in place and that the WJC is being run in a manner fitting to such an important body. I am looking forward to hearing from them.”

(JTA correspondent Henry Benjamin in Sydney, Australia, contributed to this report.)