In an interview with Metro, Lucy Lawless reveals that she had been in talks about a Star Wars role. Not in The Mandalorian.

Then controversy erupted around The Mandalorian's Gina Carano and there was a strong push from fans to replace Gina with Lucy.

Gina was ultimately fired but she and her controversial sentiments also had supporters among fans.

Lawless also wasn't offered the role and suspects that she may have been seen as too politically divisive a choice.

Firing Gina but axing her role entirely was splitting the difference between the two sides with less risk of alienating either. Then hiring Lucy even in a different role could have upset that.

Pre-Disney, Star Wars tended to employ well known actors relatively sparingly. Since taking ownership, Disney have swung the other way.

Xena Warrior Princess would have been a real coup for them.

References

Barr, Sabrina (September 27, 2021). Lucy Lawless says fans wanting her to replace Gina Carano in The Mandalorian might have ‘hurt’ chances of being in Star Wars project. Metro. 

Caron, Nathalie (July 21, 2015). Here's What Lucy Lawless Says About That Xena: Warrior Princess Reboot. SYFY Wire. [Image source]