In the first campaign in his second spell he led them to the league championship, adding a semi-final presence in the Copa del Rey after ousting Real Madrid in the round-of-16 and Deportivo de La Coruña in the quarter-finals.

In the European campaign, the team reached the final after disposing of, amongst others, Inter Milan and fellow Spaniards Rayo Vallecano, meeting Liverpool in the decisive match: despite being 0–2 and 1–3 down, they embarked on a spirited comeback and took the game to extra time, eventually losing after an own goal by Delfí Geli;[6] at the season's closure, he was voted Spanish Manager of the Year by magazine Don Balón.

However, on 29 April 2003, he was sacked following a 3–0 away loss against Valencia CF, being replaced by Jesús Aranguren as the campaign ended in relegation after a five-year stay.

In the following season, he returned to his native community after being appointed as Athletic Bilbao as a replacement for the sacked Félix Sarriugarte,[11] with the Lions eventually ranking 17th, the lowest place outside the relegation zone.

[12][13] However, despite the club remaining in the main division he was not invited to continue in the role – Joaquín Caparrós was brought in as coach following the election of a new president (Fernando García Macua).