Prime Minister Benjamin Netanyahu, who spearheaded the program to deport about 38,000 migrants to an African nation that wasn't identified, said Monday that the deal had fallen through and that his government had instead reached an agreement with the United Nations refugee agency to send at least 16,250 to Western countries.
The same amount will be given residency in Israel, he said. The deportations were meant to begin on Sunday but it was blocked by Israel's Supreme.
Implementing the signed agreement was expected to take five years.
The others will be given temporary residency permits, he said at a press conference in Jerusalem.
Where are the migrants from?
The Africans, almost all from dictatorial Eritrea and war-torn Sudan, say they fled for their lives and faced renewed danger if they returned.
Illegal African migrants gather before their release from the Holot detention center in Negev desert in Israel, on August 25, 2015.
Most arrived in Israel in the second half of the last decade, crossing from Egypt before the route was sealed.
How controversial is this issue?
A previous plan already underway for a mass deportation of some 20,000 migrants to Rwanda had led to legal challenges in Israel, drawn criticism overseas and triggered an emotional public debate among Israelis.
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The PMO said that the new plan had been approved by the attorney general and was in keeping with worldwide law and practice.
Netanyahu said the opposition was "baseless and absurd" and that Israel would resettle "genuine refugees".
"Israel and the UN High Commissioner for Refugees have reached unprecedented understandings for the departure of at least 16,250 migrants.to Western nations", the Israeli statement said, without naming the countries.
The announcement comes a day before the deadline imposed by the Israeli government in January, giving some 38,000 undocumented African migrants the choice between indefinite imprisonment with eventual forced expulsion, or a $3,500 payment and a plane ticket back to their home countries or to Rwanda and Uganda - with which Israel struck deals in 2017 and 2013 to accept migrants in exchange for modest sums of money.
Opposition leaders and activists in Israel hailed the new deal on Monday.
The arrangement had drawn opposition from within his governing coalition.
He called it a "total surrender to the false campaign in the media" and said the credibility of the government was at stake.
The plan sparked protests in Tel Aviv, where thousands of African refugees have settled in a cluster of neighborhoods known as "Little Africa".
Mr Netanyahu defended the agreement, saying it "protects the interest of the State of Israel and gives a solution to the residents of southern Tel Aviv and other neighbourhoods, and also the people who came into Israel".
Netanyahu said on social media that Rwanda had in the past few weeks folded to huge pressure and backed out of the deal it had made with Israel to accept expelled migrants, prompting him to seek the new arrangement with the UNHCR. This group includes people fleeing war-torn countries such as Syria, who are likely to be granted refugee status, as well as people who are seeking jobs and better lives, who governments are likely to rule are economic migrants.