The compromise came after the voting in the General Assembly set for Wednesday was postponed at the request of the two contenders to give time to their foreign ministers to agree on a common candidate.
The foreign ministers of the two countries met at the Ecuador's mission and later its ambassador Diego cordovez said they have agreed that Panama will the country that would replace them.
In most of the 47 rounds of balloting held by the General Assembly, Guatemala has led Venezuela by between 25 and 30 votes.
Latin American diplomats today said they expect the foreign ministers of Guatemala and Venezuela to meet in New York next week in an effort to find a common candidate in favour of whom both could withdraw.
Guatemala was strongly supported by the United States in its efforts to win the seat.
The 35-member Group is expected to endorse Panama after which the General Assembly will hold a vote to formally elect it for a two-year term beginning January 1.
If elected, it will take the seat of Argentina, which retires on December 31 at the end of its two-year term.
The Council has fifteen members, including five permanent and 10 non-permanent. Five of the non-permanent members retire each year. The non-permanent seats are distributed on regional basis and a member can contest only from the group to which it belongs.
The 192-member Assembly had elected four other non permanent members in the first round itself -- South Africa, Indonesia, Italy and Belgium were elected to replace Tanzania, Japan, Denmark and Greece.
Peru, Congo, Ghana Qatar and Slovakia, who were elected in 2005, will retire by the end of 2007.
