This statement appears to indicate that IAI was considered at some point, but was dropped for the very reasons that the JPost report lays down. Short point: the Gripen is thankfully very much still in the race, and Saab is in fact a little bemused by the belated report on IAI’s exit from the NG programme, though the truth remains that IAI was forced out by US pressure.
In addition, Flightglobal’s very authoritative aerospace columnist Stephen Trimble has his own take on the whole affair. He writes that Saab had already dropped IAI as an option for the Gripen NG’s sensors and has offered India the Gripen armed with an AESA radar made by Italian avionics firm Selex Galileo (see slides). He adds another vital nugget of information — that the original Thales radar was blocked by the French (conflict with the Rafale), and therefore Saab was forced to scout for other radar vendors.