The reluctant announcement makes Massachusetts Sen. John Kerry the likely choice to be the nation's next top diplomat when Hillary Rodham Clinton departs soon. Rice withdrew when it became clear her political troubles were not going away, and support inside the White House for her potential nomination had been waning in recent days, administration officials said.
In another major part of the upcoming Cabinet shake-up for President Barack Obama's second term, former Republican Sen. Chuck Hagel of Nebraska now is seen as the front-runner to be defense secretary, with official word expected as soon as next week.
For the newly re-elected president, Rice's withdrawal was a sharp political setback and a sign of the difficulties Obama faces in a time of divided and divisive government. Already, he had been privately weighing whether picking Rice would cost him political capital he would need on later votes.
When Rice ended the embarrassment by stepping aside, Obama used the occasion to criticize Republicans who were adamantly opposed to her possible nomination.
"While I deeply regret the unfair and misleading attacks on Susan Rice in recent weeks, her decision demonstrates the strength of her character," he said.
"I am saddened we have reached this point," Rice said.
Obama made clear she would remain in his inner circle, saying he was grateful she would stay as "our ambassador at the United Nations and a key member of my Cabinet and national security team." Rice, too, said in her letter she would be staying.
Clinton, in a brief statement, said that Rice had "been an indispensable partner over the past four years" and that she was confident "that she will continue to represent the United States with strength and skill."
Rice had become the face of the bungled administration account of what happened in Benghazi, Libya, on Sept. 11, 2012 when four Americans, including the U.S. ambassador to Libya, were killed in what is now known to have been a terrorist attack.
Obama had defiantly declared he would chose her for secretary of state regardless of the political criticism, if he wanted, but such a choice could have gotten his second term off to a turbulent start with Capitol Hill.
In a letter to Obama, Rice said she was convinced the confirmation process would be "lengthy, disruptive and costly." The letter was part of a media rollout aimed at upholding her reputation. It included an NBC News interview in which she said her withdrawal "was the best thing for our country."
"Those of you who know me know that I'm a fighter, but not at the cost of what's right for our country," she tweeted later.
Rice may end up close to Obama's side in another way, as his national security adviser should Tom Donilon move on to another position, though that is not expected imminently. The security adviser position would not require Senate confirmation.
Rice would have faced strong opposition from Senate Republicans who challenged her much-maligned televised comments about the cause of the deadly raid on the U.S. Consulate in Benghazi, Libya.
Her efforts to satisfy Sens. John McCain, Lindsey Graham, Kelly Ayotte and Susan Collins in unusual, private sessions on Capitol Hill fell short. The Republicans emerged from the meetings still expressing doubts about her qualifications.
"The position of secretary of state should never be politicized," Rice said. "As someone who grew up in an era of comparative bipartisanship and as a sitting U.S national security official who has served in two U.S. administrations, I am saddened that we have reached this point."
Attention now shifts to Kerry, who came close to winning the presidency in 2004 and has been seen as desiring the State job. In a statement, he made no mention of his own candidacy but praised Rice, who was an adviser to him his in his presidential bid.
Kerry was an early backer of Obama and was under consideration to become his first secretary of state. Obama has dispatched Kerry to foreign hot spots on his behalf. Kerry played the role of Republican Mitt Romney during Obama's presidential debate preparations this year.
The longtime senator would be almost certain to be easily confirmed by his colleagues on Capitol Hill.
If Obama taps Kerry for State, the president will create a potential problem for Democrats by opening a Senate seat — one that recently defeated Republican Sen. Scott Brown is eyeing. Brown had been elected as Massachusetts' other senator in January 2010 after Democrat Ted Kennedy died, stunning the political world as he took the seat held by Kennedy for decades. Brown lost that seat in the November election.
House Democratic women had cast the criticism of Rice as sexist and racist — she is African-American — and some expressed disappointment with the news.
"If judged fairly based solely on her qualifications for the job, she would've made an extraordinary secretary of state," said Rep. Karen Bass, D-Calif., a member of the House Foreign Affairs Committee.
Rice did not have a strong relationship with members of the Senate. Graham, who is the top Republican on the Appropriations subcommittee that handles foreign aid and the State Department, said he barely knew her.
In a brief statement, a spokesman for McCain said the senator "thanks Ambassador Rice for her service to the country and wishes her well. He will continue to seek all the facts surrounding the attack on our consulate in Benghazi."
Rice's decision comes ahead of the anticipated release next week of a report by an Accountability Review Board into the attack on the Benghazi mission. The report ordered by Clinton, focuses on the run-up to and the actual attack and is not expected to mention Rice's role in its aftermath.
Clinton is to testify about the report before Congress next Thursday.
At issue is the explanation Rice offered in a series of talk show appearances five days after the attack in Libya.
Rice has conceded in private meetings with lawmakers that her initial account — that a spontaneous demonstration over an anti-Muslim video produced in the U.S. triggered the attack — was wrong, but she has insisted she was not trying to mislead the American people. Information for her account was provided by intelligence officials.
She reasserted that position in an opinion piece published late Thursday on The Washington Post's website, adding, "In recent weeks, new lines of attack have been raised to malign my character and my career. Even before I was nominated for any new position, a steady drip of manufactured charges painted a wholly false picture of me. This has interfered increasingly with my work on behalf of the United States at the United Nations and with America's agenda."
Hagel, a former Republican senator from Nebraska, is a Vietnam veteran, served two terms in the Senate and was a senior member of the Foreign Relations Committee. Obama and Hagel became close while they served in the Senate and traveled overseas together. Hagel has been critical of his party since leaving the Senate in 2008, saying the GOP had moved too far right.