The problem of identifying the diffusion parameter appearing in a nonlocal steady diffusion equation is considered. The identification problem is formulated as an optimal control problem having a matching functional as the objective of the control and the parameter function as the control variable. The analysis makes use of a nonlocal vector calculus that allows one to define a variational formulation of the nonlocal problem. In a manner analogous to the local partial differential equations counterpart, we demonstrate, for certain kernel functions, the existence of at least one optimal solution in the space of admissible parameters. We introduce a Galerkin finite element discretization of the optimal control problem and derive a priori error estimates for the approximate state and control variables. Using one-dimensional numerical experiments, we illustrate the theoretical results and show that by using nonlocal models it is possible to estimate non-smooth and discontinuous diffusion parameters.