Liverpool will release Diaz to acquire Alexander Isak. Liverpool may not lower the price too much if Munich is indeed interested and submits the next offer. Barcelona, which was originally also interested in Diaz, has already backed down after finding other options. Munich may also shift its interest to other players if Liverpool remains firm on their decision to sell him at that price. If the situation gets closer, Liverpool may accept Munich's offer to get Alexander Isak. But who knows, let's just follow the developments.
Diaz remains Bayern Munich's top priority this season, and they have submitted a formal bid for Diaz, but Liverpool rejected the bid because the money Bayern Munich offered for Diaz wasn't close to the price Liverpool wants to sell Diaz for. I believe since Liverpool needs money to finance the deal of Isak, they will lower Diaz's price a little bit so that it can be easy for Bayern Munich to sign him, and Liverpool, on the other hand, will sign Isak from Newcastle United.
According to reports, Munich has submitted two offers so far for Diaz. The amounts are also high, which shows Munich's seriousness in prioritizing Diaz's transfer. However, if the response continues to be a rejection, Munich may ignore it and back off from trying to bring in Diaz. Both parties are playing a game in business. Everyone wants to gain profit, while for Liverpool, selling Diaz will help them finalize their efforts to bring in Alexander Isak.