Paletta debuted in the 2006–07 UEFA Champions League in a group stage fixture in a 3–2 away defeat against Galatasaray on 5 December. He was substituted off of the field in the 66th minute for Luis García. Paletta played a full 90 minutes of Liverpool's 2006–07 Football League Cup quarter-final match, a 6–3 home defeat against Arsenal on 9 January 2007. By the time that Paletta had made just eight appearances for Liverpool in all competitions, it was reported on 9 July that Paletta would be loaned to Spanish club Levante in order to gain some valuable first-team experience as Levante had expressed their interest signing Paletta on loan deal for the whole of 2007–08 season. Although Liverpool manager Rafael Benítez had agreed to loaning the defender, the loan deal was not reached. Liverpool went on to reach the final of the 2006–07 UEFA Champions League, losing 2–1 to Milan on 23 May 2007. On 26 August, it had been officially reported that Liverpool had agreed for Paletta to sign with Boca Juniors, having welcomed the arrival of Argentine Emiliano Insúa.