It was a reasonably high setting. The reason it evaporated the wall is because it was set to 'wide beam' which evidently disperses the wall's material instead of cutting it or exploding it.
You can see the direction a bit more clearly in the original screenplay
SISKO: But what's behind the wall?
He takes out his phaser, adjusts the setting and FIRES it at one of
the sandstone walls.
Scene 30: ON THE CAVE WALL (OPTICAL)
as the WIDE BEAM gently washes away a layer of sandstone TO REVEAL a
section of the enormous Obelisk. We see clearly the distinctive
markings of one of its faces. There can be no mistake about it --
they've found the lost city of B'hala.
Based on what we see in the episode (and the description in the Star Trek: TNG: Technical Manual, considered a canon source of info about the Trek universe), he appears to have set the phaser to somewhere around levels 10 - 12:
Setting 10: Disruption Effects; discharge energy 125,000 for 1.3
seconds, SEM:NDF ratio 1:9. The damage index is 450; heavy alloy
structural materials absorb or rebound energy, 0.55 sec delay before
Setting 11: Explosive/Disruption Effects; discharge energy 300,000 for
0.78 seconds, SEM:NDF ratio 1:11. The damage index is 670; ultradense alloy structural materials absorb/rebound energy, 0.20 sec delayed
reaction before material vaporizes. Light geologic displacement; <10
m3 rock/ ore of 6.0 g/cm3 explosively uncoupled per discharge.
Setting 12: Explosive/Disruption Effects; discharge energy 540,000
for 0.82 seconds, SEM:NDF ratio 1:14. The damage index is 940;
ultradense alloy structural materials absorb/rebound energy, 0.1 sec
delayed reaction before material vaporizes. Medium geologic
displacement; <50 m3 rock/ore of 6.0 g/cm3 explosively uncoupled per