Israel has hailed US President Donald Trump's recognition of Jerusalem as its capital, but the Palestinians condemned the move, as did two of the US' allies, Germany and Britain.
In a landmark speech in Washington, Trump reversed decades of US policy in defiance of warnings from around the world that the gesture risked creating further unrest in the Middle East.
Past US presidents have insisted that the status of Jerusalem - home to sites holy to the Jewish, Muslim and Christian religions - must be decided in negotiations between the two sides.
Israeli Prime Minister Benjamin Netanyahu, said in a pre-recorded video message that Trump's decision had made for a "historic day" and was "an important step towards peace".
He added that any peace deal with the Palestinians would have to include Jerusalem as Israel's capital and he urged other countries to follow the US lead by also moving their embassies to the city.
He said there would be no change to access to Jerusalem's holy sites. "Israel will always ensure freedom of worship for Jews, Christians, and Muslims alike."
But Palestinian President Mahmoud Abbas said Trump's move was "tantamount to the United States abdicating its role as a peace mediator" and declared Jerusalem as the "eternal capital of the State of Palestine".
"With this announcement, the American administration has chosen to violate all international and bilateral agreements and resolutions and it has chosen to violate international consensus," Abbas said.
The move, he said, would serve "the extremist groups which try to turn the conflict in our region into a religious war that will drag the region ... into international conflicts and endless wars."
Palestinian Islamist group Hamas, which dominates the Gaza Strip, said Trump's move was "flagrant aggression against the Palestinian people" and urged Arabs and Muslims to "undermine the US's interests in the region" and to "shun Israel".
German Chancellor Angela Merkel said Germany did not support the decision.
"The German government does not support this position, because the status of Jerusalem is to be resolved in the framework of a two-state solution," she was quoted as saying in a tweet by the government spokesman.
British Prime Minister Theresa May also disagreed with the US decision because it was unlikely to help efforts to bring peace to the region, her spokesman said on Wednesday.
Jerusalem should ultimately be shared between Israel and a future Palestinian state, the spokesman said.