Venezuelan President Hugo Chavez accused Mexican leader Vicente Fox of being a "puppy" of President Bush and said: "Don't mess with me, sir." Fox shot back on Monday that "we have dignity in this country" and demanded an apology.
Now the two nations are withdrawing their ambassadors.
The severing of diplomatic relations came after a week of verbal sparring that highlighted Latin America's differences over free trade and relations with the United States. The conservative Fox tends to side with Washington on many issues, while Chavez, a socialist and populist, has been one of the hemisphere's strongest critics of Bush.
Venezuela's president has repeatedly accused Fox of being a "puppy" of American interests and of disrespecting him after the pair took opposing positions during this month's Summit of the Americas.
On Sunday, Chavez used his weekly radio and TV show to warn Fox: "Don't mess with me, sir, because you'll get stung."
Fox retorted in an interview with CNN: "Other countries might accept (Chavez's) wording and the way he attacks everybody and he attacks institutions. We are not willing to do that in Mexico."
Venezuela called its ambassador home Monday rather than apologize for the remark, and Mexico responded by recalling its own envoy to Venezuela.
Fox said his government was mulling its next move.
"We can't allow people to offend our country," he told CNN en Espanol.
Venezuelan Ambassador to Mexico Vladimir Villegas said he would fly to his homeland aboard a commercial flight Monday night.
"The whole world knows that this didn't begin on the Venezuelan side," Villegas said.
When asked what the driving issue was behind the flap, he said "look a little bit north" — a reference to the United States.
Tensions between Fox and Chavez spilled over after the summit in Argentina, where Fox defended a U.S.-backed proposal for a Free Trade Area of the Americas. Chavez proclaimed the idea dead.
They reached a breaking point late Sunday, when Mexico issued a statement saying Chavez's latest barb "strikes at the dignity of the Mexican people and government."
Early Monday, Fox's spokesman, Ruben Aguilar, said Mexico would expel the ambassador if Venezuela didn't apologize by midnight.
Hours later in Venezuela, Foreign Secretary Ali Rodriguez said his country would not accept Mexico's demands.
Venezuela "rejects as an unjustified attack the ultimatum issued by the government of Mexico," Rodriguez said. "This situation is entirely the responsibility of President Fox."
Fox responded by saying he was going to continue to fight for free trade.
"In this issue we have to avoid personalities and characterizations," he told CNN en Espanol. "This is not about Mr. Chavez. This is not about Mr. Fox. It's about two nations."
Aguilar said withdrawing ambassadors wouldn't mean severing ties completely with Venezuela because business and cultural relations would remain intact. The Economy Department released a statement Monday afternoon detailing trade ties between the two oil-rich nations.
Mexican Foreign Secretary Luis Ernesto Derbez characterized Chavez's latest comments as "truly infuriating."
But he said despite the current conflict, "the historical friendship between our country and the nation of Venezuela continues unaltered."
Also Monday, Mexican prosecutors announced a large upswing in heroin shipments entering Mexico from Venezuela, and suggested that corrupt Venezuelan airport workers may be letting the drugs through. The prosecutors denied the announcement was related to the diplomatic dispute.
Aguilar backed away from insisting on an apology for Chavez's remarks in order to re-establish diplomatic relations, saying Venezuela could win over Mexico with conciliatory gestures and statements.
But Fox said in a subsequent interview with CNN that an apology was necessary.
"Of course, my minister of foreign relations and most of the people in Mexico are demanding that apology because (Chavez) used very strong words," Fox said. When asked why Mexico recalled its ambassador to Venezuela, he replied "because we have dignity."