The Sunderland winger, 21, impressed during a loan spell at Town during their 2019-20 promotion season to the EFL, scoring five goals and providing eight assists in 35 appearances.
Diamond famously scored the third goal in Harrogate's promotion-clinching 3-1 victory over Notts County in the National League play-off final at Wembley in August, 2020.
He has now returned to The EnviroVent Stadium and will stay at the club for the remainder of the campaign.
The north-easterner said: “The move presented a good challenge for me, I’ve already done a lot here and finished off on a high when I left so the challenge now is to replicate what I have done.
“I grew a lot as a player in my last spell and was able to find consistency, all the lads helped me so much with advice.
“There’s no time in football to stay still, you have got to keep improving yourself so coming here on loan was a great option for me.
The Gateshead-born player had featured three times for the Wearsiders, making two starts in the Carabao Cup.
The one-time Spennymoor wingman has become Harrogate's eighth signing of the summer window.