A failed assassination attempt in Jordan and a botched wire-tapping led Danny Yatom, the previous head of Mossad, to resign last week.
The reputation of Mossad, previously known for its effectiveness, also was damaged by the discovery that Yehuda Gil, one of its agents, had for years fabricated a source in the Syrian government and was pocketing money paid to him.
Mr Halevy is Israel's ambassador to the European Union and a former deputy head of the organisation.
He will have as his own deputy, General Amiram Levine, currently head of Israel's northern command, which is fighting a low-level campaign against Hizbollah guerrillas in Lebanon. Part of his brief will be to groom General Levine as the next head of Mossad.
A motive for appointing Mr Halevy is that he has close ties with Jordan. Jordan was angered by the attempt last year by Mossad agents to assassinate Khalid Meshal, a leader of Hamas, the Islamic militant organisation, with poison gas outside his office in Amman, the Jordanian capital.
King Hussein is believed to have considered storming the Israeli embassy in Amman if the antidote had not been produced by Israel. Despite the Meshal affair, Jordan has little alternative but to rely on Israel in case of a confrontation with Iraq.
r President Ezer Weizman has been re-elected for a second five-year term by the Knesset, the Israeli parliament. He defeated Shaul Amor, who stood as the representative of Jews who came originally from the Middle East, by 63 votes to 49.