Liberal senator Jim Molan has accepted a stronger apology from Greens MP Adam Bandt, who had questioned the retired major-general's military record in Iraq.
Mr Bandt had suggested in a TV interview on Wednesday the senator may have committed war crimes during the battle for Fallujah.
Senator Molan, who served as the chief of operations of the US-led coalition forces in Iraq, threatened to pursue the Greens MP through the courts for defamation.
Mr Bandt offered a brief written apology, but Senator Molan was deeply disappointed by it and kept the defamation action "on the table".
Mr Bandt issued a longer statement on Friday.
"I wish to publicly say that I was wrong to make such accusations and inferences against Senator Molan," he said.
"I sincerely apologise and express my regret to Senator Molan and to those who have served in Australia's operational theatres and to their families and friends who were offended by my comments.
"I propose to make a donation to a veterans organisation as an expression of my sincerity over this issue."
Senator Molan told The Australian newspaper he accepted the apology and would drop the defamation action.
"I won't take the matter any further," he told The Australian.
"I was disappointed the (statements) were made and it was very hurtful for many other people who have contacted me but I am very satisfied with this apology now."
