Egyptian President Mohammed Morsi's office called the tweet "inappropriate" and unbecoming of a diplomatic mission while the State Department said the unusual affair was the result of "glitches" in the embassy's social media policies that are now being corrected.
The imbroglio over the tweet comes at a time of rising tensions between Cairo and Washington, which has expressed deep concerns that Morsi's government is backsliding on human rights protections.
And, it underscores the pitfalls of allowing individual American embassies to control the messages they disseminate through social media.
The trouble began Tuesday when the embassy posted a link to Stewart's monologue on his Comedy Central show the night before. Stewart took savage aim at Morsi for the arrest and interrogation of Egyptian comic Bassam Youssef, who has frequently criticized the president on a popular TV program that has been likened to Stewart's own.
In the clip, Stewart accused Morsi of being petty, undemocratic and ignoring more pressing problems like Egypt's economic crisis and violent crime to go after satirists who are critical of his government. He pointed out that he has made a living by poking fun at political leaders and that such activity is harmless and should be protected.
Morsi's office responded to the embassy's post on its own Twitter feed, saying: "It's inappropriate for a diplomatic mission to engage in such negative political propaganda."
The embassy responded on Wednesday by deleting its entire Twitter account, drawing the wrath of State Department headquarters in Washington, which was already peeved by the initial post. The account was then restored minus the Stewart tweet.
"Embassies and consulates and their senior leadership manage the content that is on their feeds and they are expected to use good policy judgment in doing that," State Department spokeswoman Victoria Nuland said.
On Monday, Nuland had made comments similar to Stewart's, although more nuanced and couched in diplomatic terms, about Youssef's arrest.
She declined to say if the State Department agreed with the Egyptian government's criticism of the tweet. But she suggested the embassy had erred by posting a link to a video that is already widely available on the Internet.
"I can't speak to the decision to re-tweet Jon Stewart to start with," she said. "But Jon Stewart is a comedy show in the U.S., as you know. It is publicly available content."
She said the "glitches" she referred to were "the fact that they obviously put up something that they later took down, that they took down the whole site, which should not probably have been the way that went, and that in the past there have been differences between the Twitter team and senior post management."
The U.S. Embassy in Cairo last year engaged in a public spat with Morsi's Muslim Brotherhood over the breach of the embassy's walls by protesters upset over an anti-Islam film produced in the U.S. and posted on the Web.
Steve Albani, spokesman for Comedy Central, declined to comment on the flap.
Nuland stressed that the U.S. position on the arrest of Youssef, whom she described as Egypt's "Jon Stewart counterpart," remained unchanged since Monday when she referred to it as part of a "''disturbing trend" of growing restrictions on freedom of expression in Egypt.
"There does not seem to be an evenhanded application of justice here," she said, adding that the Egyptian government has been slow to investigate police brutality or attacks on anti-Morsi protesters and journalists.
On Tuesday, the Muslim Brotherhood's Freedom and Justice Party denounced Nuland's comments as "blatant interference" in Egypt's internal affairs.
Hours later, Secretary of State John Kerry jumped into the fray saying that Washington has "real concerns about the direction Egypt appears to be moving in," adding that the country is at a "tipping point."
Copyright 2013 The Associated Press.