The Vatican has withdrawn from a written agreement to join an international Holocaust memorial organisation because of tensions over the activity of Pope Pius XII, the pope during the second world war, American diplomatic cables show.

Relations have become so frosty that the Vatican "rowed back on a prior written agreement" to take up observer status on an international organisation dedicated to remembering the Holocaust and transmitting its lessons to the future, according to Julieta Valls Noyes, the number two at the American embassy to the Holy See.

In October 2009, she reported that the plans for the Vatican to take up observer status at the Task Force for International Cooperation on Holocaust Education, Remembrance, and Research "had fallen apart completely … due to Vatican back-pedalling".

She was unclear whether this was attributable to the newly-appointed deputy foreign minister of the Vatican, Mgr Ettore Balestrero, whom she described as "relatively inexperienced", adding that "this would not be the first time he has complicated Vatican foreign relations".

But she thought it might also indicate that the Vatican "may ... be pulling back due to concerns about ITF pressure to declassify records from the WWII-era pontificate of Pope Pius XII".

Pius XII has long been a controversial figure for his failure publicly to denounce the Holocaust in 1941 or 1942, when the Vatican was first informed of what was going on.

Before becoming pope, he had served as the Vatican ambassador in Berlin. Some Jewish groups have accused him of anti-semitic attitudes; his defenders, among them many other Jews, have argued that any more overt resistance to the Nazis would have been counter-productive, citing the example of the church in the Netherlands, where savage repression and the deportation of many more Jews followed a denunciation of Nazi policies from the pulpit.

Both sides believe they will be proved right by papers in the Vatican archives, but their release has been extremely slow. The American diplomatic cables show a long and increasingly futile effort on behalf of the embassy to mediate between the Vatican archivists and outside historians, bedevilled by mutual mistrust.

The story starts in 2001, when the first attempt to negotiate a solution had already broken down. Father Peter Gumpel, a German Jesuit priest and admirer of Pius XII, who was keeper of the archives, threatened to sue a journalist who suggested that he or his family had been Nazis, the cables show.

"Gumpel also expressed concern about references in the media and in other comments to him as the 'German Jesuit'. Gumpel [said] his family had been victims of Nazi persecution and several had been killed by the Nazis.

He himself had to flee Nazi Germany as a refugee, first to France and then later to Holland. He recalled that at one point a reporter had planned to print an assertion that Gumpel was a Nazi himself – something Gumpel said was libellous, and which he was more than willing to go to court to fight."

The next year, Cardinal Walter Kasper, another German, attempted to restart the dialogue over the papers. The-then American ambassador, Jim Nicholson, reported a conversation with him on December 18 2001. "[Kasper] said that Father Gumpel was the Vatican's best informed living expert on the papacy of Pius XII."

Two months later, partly responding to American pressure, Pope John Paul II, who also wanted his predecessor canonised, authorised the early release of documents relating to Pius XII's earlier career as the Vatican's ambassador to Germany.

Nicholson reported: "The decision … appears to be an attempt by the pope to silence accusations of anti-semitism levelled against his predecessor Pius XII. It may also herald renewed Vatican interest in beatifying Pius XII – free from the pall of scandal and derision.

The decision by Pope John Paul II to dispense with standard operating procedures in this case comes after years of Vatican protestations that this material could not be released because it was not yet properly catalogued. The decision shows that whatever the pope wants, does in fact happen."

But this would not be true for very much longer. As John Paul II sank into the Parkinsonian condition that would eventually kill him in 2005, the Vatican drifted. There is reference to the shortage of researchers, and by the time the subject resurfaces in 2009 all hope of compromise seems gone.

Noyes reported that only six or eight researchers were working on the 16m documents, stored in hundreds of crates, that are left over from Pius XII's papacy. It had earlier taken a team of four Jesuits, working full time, 17 years to produce 12 volumes of his diplomatic correspondence.

One well-informed Jewish observer remarked that the desire to canonise Pius XII stems almost entirely from internal Catholic dynamics.

What really mattered in the struggle between liberals and conservatives was the interpretation of the reforming Second Vatican Council, called by his successor, John XXIII.

Was this a break with the past, as liberals believe, or merely a development, as conservatives see it?

So long as John XXIII is on the road to sainthood, and Pius is blocked, it is harder to maintain that the two men pursued that same policy.

In this context, the Holocaust is not the most important fact about Pius's pontificate, as for Jews it must be. This kind of disagreement could not be solved even if the archives were entirely open, and all the facts were known, and agreed.