The Tricycle Theatre should consider sacking directors who planned the boycott of the Jewish Film Festival, a senior figure close to the affair has argued.

The Tricycle had demanded that the UKJFF drop its £1,400 sponsorship from the Israeli embassy before allowing it to use the north London theatre as its main venue. But, following talks between the parties, the theatre dropped the demand and said it would welcome the festival back.

The deal came after Israeli ambassador Daniel Taub and Culture Secretary Sajid Javid intervened.

This year's festival, due to take place in November, has been relocated to new venues and will not take place at the Tricycle. The JC understands the row and subsequent move have had "substantial" financial implications for UKJFF.

One source close to the negotiations behind the deal told the JC the theatre ought to undergo a period of "rehabilitation - how will the tricycle convince the Jewish community it was a grave error of judgment and they are not antisemitic? The Tricycle got it wrong every step of the way. Maybe heads have to roll.

We are greatly reassured that dialogue not divestment has prevailed

"They have misjudged the mood. People want to understand why they have made this new decision. There was no apology." He added that the position of the artistic director, Indhu Rubasingham, "was a problem".

Both parties refused to comment beyond an agreed joint statement this week stating: "Following lengthy discussions, the Tricycle has now withdrawn its objection and invited back the UKJFF on the same terms as in previous years with no restrictions on funding from the embassy of Israel.

"We hope to begin the process of rebuilding trust and confidence with a view to holding events in the future."

Welcoming the statement, the Board of Deputies and Jewish Leadership Council together said: "Although the original decision taken by the Tricycle tore through the hearts of the wider Jewish community, we are greatly reassured to see that dialogue has prevailed over divestment."

The Tricycle's U-turn did not placate everyone. Actress Maureen Lipman said she did not believe the festival would ever be able to return to the venue due to the level of hurt caused.

Tal Ofer, who had encouraged Jewish Tricycle donors to withdraw their funding, said: "The Tricycle has neither apologised nor accepted its position was wrong. Some people are demanding that the artistic director should be sacked."