Former United States Ambassador Charles Swindells got the job because he was a Republican Party funder so did not understand diplomacy, and as a result fed wrong information about New Zealand to his Government, Labour leader Phil Goff says.
Mr Goff lashed out after diplomatic cables released by Wikileaks showed Mr Swindells accused the Government in July 2004 of over-reacting to Israeli agents trying to get New Zealand passports fraudulently, saying New Zealand wanted to boost trade with Arab countries.
Relations between Israel and New Zealand chilled after two reported Mossad agents, Eli Cara, 50, and Uriel Kelman, 31, were caught and jailed for trying to illegally obtain New Zealand passports in 2004.
A third suspected Mossad agent was a former Israeli diplomat based in Europe, Zev William Barkan, who stole the identity of a tetraplegic Aucklander to fraudulently obtain his passport.
Police also sought a fourth person.
Helen Clark, prime minister at the time, said there was no doubt the men were Mossad operatives and suspended high-level diplomatic relations for more than a year until Israel apologised in 2005.
In the cables, Mr Swindells said New Zealand had "little to lose" by acting against Israel "and possibly something to gain in the Arab world... actively pursuing trade with Arab states".
And in another cable he said the Government saw the "flap" as "an opportunity to bolster its credibility with the Arab community, and by doing so, perhaps help NZ lamb and other products gain greater access to a larger and more lucrative market".
The US embassy has responded by saying individual cables should not be seen as "having standing on their own" or as representing US policy.
Mr Goff was furious at the claims and said Mr Swindells let his background as a financier influence how he saw foreign affairs.
"It's the norm for the Americans to appoint ambassadors that aren't professionals... Charles I think really suffered from a lack of knowledge and a lack of understanding of how countries work and what they do.
"He had his job because he's obviously a big contributor to the Republican Party, he made the assumption because he thought about the world in a particular way other people might as well."
In other cables it was alleged New Zealand sent engineers to Iraq so Fonterra could profit from contracts, something Miss Clark and Mr Goff strenuously deny.
Mr Goff said as a businessman Mr Swindells did not understand foreign policy was not just about trade but "principles and it's about fundamental beliefs and he clearly had no understanding of those things".
The ambassador also muddied the water by suggesting in other cables that the Government might shift on its anti-nuclear stance.
"It is a worry when the State Department is being fed misinformation... We were never going to do that so that led the then-administration to continue to put pressure on longer than otherwise would be the case."
Mr Goff said New Zealand's action against Israel was "a measured, appropriate and effective reaction. It had absolutely nothing to do with trade".
A spokesman for the embassy in Wellington said it did not comment on classified documents, "which may have been leaked" but it could comment on the diplomatic community's practice of cable writing.
"Cables reflect the internal day to day analysis and candid assessments that feed the governments' foreign relations deliberations.
"These cables are often preliminary and incomplete expressions of foreign policy, and they should not be seen as having standing on their own or as representing US policy."