In calling off the June 28 event, the officials cited concerns that they lacked the resources to safely manage the thousands of supporters and protesters who were expected to converge on the small mountain community of 8,000 residents.
The decision came as pressure mounted to cancel the rally in the face of rising hostility, expressed in a torrent of emails and phone calls directed at city officials and businesses, over claims by Bergdahl's onetime Army comrades that he deliberately abandoned his post in Afghanistan.
Some have asserted that the search for Bergdahl after he went missing under murky circumstances on June 30, 2009, may have cost the lives of up to six fellow soldiers.
Days ago, the central Idaho town near the upscale ski resort of Sun Valley erupted in elation over news that the 28-year-old Army sergeant had been freed in a prisoner exchange with the Taliban.
But the festive mood prevailing on Saturday after Bergdahl's release was soon tempered by criticism from some former members of his combat unit that he was unfairly being hailed as a hero.
Hailey Police Chief Jeff Gunter said he received a phone call from a fellow police chief in Tennessee asking him, "'What's wrong with you people?'" Asked what he meant, Gunter recounted that the caller angrily replied: "'What the hell's your problem for supporting this deserter?'"
A rally organizer, Stefanie O'Neill, said as late as Tuesday it would go ahead as planned. But as recriminations grew, O'Neill and her mother, Debbie, a co-organizer, paid a visit to the sergeant's parents, Bob and Jani Bergdahl, to ask whether they wanted the celebration to proceed.
The city later said the rally, originally planned while Bergdahl was still a captive as a show of solidarity around the anniversary of his disappearance, was canceled.
"National media attention on Hailey and this event has led many across the nation to believe that the event is intended to be a military parade," a town statement said, citing public safety concerns as a reason for the cancellation.
Idaho National Guard Colonel Tim Marsano, who has acted as a family spokesman, said the Bergdahls had no statement about the decision.
Questions raised about Bergdahl's capture have stoked a related controversy over the Obama administration's decision to turn over five Taliban prisoners held at Guantanamo Bay in Cuba to the custody of Qatar in exchange for Bergdahl's return.
Some conservative commentators have also questioned the motives of Bergdahl's father, who immersed himself in books about Afghanistan after his son became a captive.
Bergdahl was flown over the weekend to a military hospital in Germany for physical and mental evaluation, and it was not clear whether he would return to Idaho by the end of the month.
For all the outpouring of hometown joy and national media attention on Bergdahl after his release, supporters in Hailey insisted they never regarded him as a hero.
"People in Hailey have been aware for some time that there were questions about how Bowe came to be captured, and that there was a chance that Bowe could be in trouble when he came home," Stefanie O'Neill said. "Our purpose was to bring Bowe back and to celebrate his return."
But she and others said they were surprised by the intensity of the backlash stirred by allegations of desertion. They said the young soldier, remembered in town as a somewhat bookish but athletic loner, should be given the benefit of the doubt until he has a chance to speak for himself.
"Bowe has been lynched without a trial," said Lee Ann Goddard Ferris, a neighbor of the soldier's family who has known Bergdahl's father, Bob, for 35 years and describes herself as a conservative Republican. "These are good people. These are good and loyal Americans."
Signs of celebration remained very much in evidence in downtown Hailey, a left-leaning pocket in an otherwise conservative state where yellow ribbons were still tied to lamp posts and trees, and banners in shop windows bear Bergdahl's image and the slogan "Bowe is free at last."
At Zaney's River Street Coffee House, a gathering point for Bergdahl's supporters where he worked as a barista before enlisting, owner Sue Martin suggested a welcome rally may have been premature.
"The family needs time to heal," she said. "I'm not unhappy it's been canceled."