The entire Reds squad donned shirts with the Uruguayan's image on as they warmed up for their Premier League clash with Wigan, after the striker had been accused of racially abusing Patrice Evra - an incident over which he ultimately served an eight-match ban.
Dalglish, who gave a television interview wearing the shirt ahead of the game against the Latics, was strongly criticised over the garment, but has now insisted it was not his fault.
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"You can’t tell me they wouldn’t have done that if they didn’t believe in him and didn’t have respect for him. It might not have been right, but it wasn’t me that decided it.
The Scot also claimed that he was completely earnest in his conduct throughout the controversy, but suggested that he would have acted slightly differently in retrospect.
“A lot of things are misinterpreted and misrepresented," he continued.
"I was brought up to be respectful and tell the truth, and what I believed to be the truth is what I said. I can’t be any different in that.
“I would do things differently. I would be less helpful and less forthcoming and that’s sad. There’s no place for racism in football in any way, shape or form."