Long has it been a crazy thing that the only way to edit the Site Map has been to export a solution with the SiteMap XML included and then hand edit that to your needs (as in the title image). This pain caused the birth of a number of tools to make this process easier (XrmToolBox being the most popular) but nothing officially released from Microsoft to support their own product; that is, until now.
The latest Dynamics 365 release (December 2016 update, build 220.127.116.119) has introduced a Sitemap Designer (pictured below).
The official help link here (Create a site map for an app) walks through the details of use but below is a quick summary.
- Add the site map to a solution.
- Double click the site map component in your solution.
- Edit the site map.
I have not spent any time using this yet but just had to get it out there and keep in mind that this is only for the very latest Dynamics release so for site maps prior to build 18.104.22.1689 (everything) you still need to manually modify the XML or use a third party tool like the excellent SiteMap Editor plugin in XrmToolBox from Tanguy Touzard.