The World Jewish Restitution Organisation (JRO) wanted Mr Wiesel, 69, to head the fund, but its constitution specifies that that post must be held by a Swiss national. So in a move designed to appease both sides, Rolf Bloch, the highly respected president of the Swiss Federation of Jewish Communities, is to preside.
However, Mr Bloch last night said he was keen to find an appropriate role for Mr Wiesel, who would give the fund an added moral authority. And a Swiss government spokesman said the cabinet was willing to give Mr Wiesel "a position in the fund leadership commensurate with his personal standing".
Mr Bloch, a chocolate manufacturer, is a highly respected member of the Swiss Jewish community who has been moderate in his criticism of the Swiss banks and government. Mr Wiesel has been more outspoken.
Swiss banks and industries have so far pledged 165 million Swiss francs (around pounds 72m) to the fund, which was set up in the wake of international pressure on Switzerland over its treatment of Jews and their bank accounts during and after the Second World War.
Mr Wiesel was taken to Auschwitz from Transylvania at the age of 15. He lost his father, mother and sister in the camps and won the 1986 Nobel Peace Prize for exposing the horrors of the Holocaust in his writings and lectures around the world.
Elan Steinberg, director of the World Jewish Congress in New York, said: "Elie Wiesel embodies the courage, pain and the suffering of the Holocaust survivors."
The Special Fund was given its legal basis at the beginning of March this year. The aim is to provide immediate help for needy victims of the Holocaust while searches continue into dormant accounts which may hold Jewish assets. Jewish organisations maintain that Switzerland owes the heirs of Holocaust victims dlrs 7 billion in assets and interest.
Although relations have improved between Switzerland and its Jewish critics, distrust still lingers - as shown by delays and misunderstandings in naming the Holocaust fund board members. Louise JuryReuse content