The Politiken newspaper was one of several Danish newspapers which, in February 2008, reprinted several cartoon images of the Prophet Mohammed that were initially published by the Jyllands-Posten newspaper, causing outrage among Muslims and violent protests worldwide in early 2006.
Politiken's move was an attack on Danish foreign policy, said former foreign minister Per Stig Moller, who earlier this week was named culture minister in a major cabinet reshuffle.
Moller, who held the foreign ministry portfolio for eight years, spent a lot of effort to calm tensions in the wake of the 2006 reactions, as well as defending Denmark's freedom of speech.
"Politiken is bowing to other's views of our freedom of speech and this can lead to further attacks on Danish freedom of speech," he told the online edition of the Berlingske Tidende newspaper.
The cartoons were reprinted after Danish security police disclosed they had averted a plot to murder Jyllands-Posten cartoonist Kurt Westergaard, who had depicted Mohammed with a bomb in his turban.
Politiken said Friday that the decision to reprint Westergaard's drawing was "part of the newspaper's news coverage" and was not an editorial opinion or aimed at offending Muslims in Denmark or elsewhere.
It said the settlement did not mean a total ban against future publication of the cartoons.
The settlement was reached between Politiken and representatives of eight organizations in countries including Egypt, Libya and Saudi Arabia representing 94,000 people who claim to be descendants of the Prophet Mohammed.
The organizations and clients represented by the Saudi Arabia-based law firm of Ahmed Zaki Yamani said "the dispute is settled, and (we) agree not to pursue any legal or administrative action against Politiken," according to lawyer Faisal Yamani, who represented them.
Yamani last year approached 11 other newspapers over the publication, but only Politiken accepted a settlement.
"It may possibly reduce the tensions that have shown themselves to be so resilient," Politiken's editor-in-chief Toger Seidenfaden said in a statement.
Helle Thorning-Schmidt, leader of the opposition Social Democrats, said it was impossible to enter into dialogue with "people who want to control the content in Danish newspapers," while the leader of the populist Danish People's Party, Pia Kjaersgaard, said the settlement was "deeply embarrassing.”
A conservative party member created a group on Facebook, the social networking Internet site, with the aim of collecting 100,000 names against Politiken's move.
Cartoonist Kurt Westergaard, who on January 1 was forced to barricade himself in a reinforced room after a 28-year-old Somali- born man broke into his home and threatened him, also said he was dismayed.
"Politiken is casting aside freedom of speech," he told the online edition of Jyllands-Posten.
The head of the Danish Union of Journalists also criticized the settlement, saying Politiken had "caved in to those who oppose freedom of the press."
The leader of the Social Liberals, Margrethe Vestager, welcomed the effort to promote dialoogue, as did Danish-born imam Abdul Wahid Pedersen.
