Australia has no intention of moving embassy in Israel despite Donald Trump now officially recognising Jerusalem as the capital.
The US president's administration has overturned decades of American policy and will begin the process of moving its embassy from Tel Aviv, but Foreign Minister Julie Bishop insists Australia does not support the plan.
"We will not be taking steps to move our embassy in Israel, it will continue to offer diplomatic assistance in Tel Aviv," she told reporters on Thursday.
Australia is committed to a two-state solution in the hotly disputed area.
"Whereby the Israeli people and the Palestinian people can live in peace side-by-side within internationally recognised boundaries remains our foreign policy objective," Ms Bishop said.
President Trump's decision has been labelled a declaration of war by some Palestinian commentators.
Ms Bishop admitted she was concerned by action from any side that could inflame tensions.
"However, the Australian government remains committed and optimistic that the way to achieve enduring peace between the Israelis and Palestinians is a negotiated two-state solution."
Reactions were mixed among other parliamentarians.
Liberal Democrats senator David Leyonhjelm welcomed Mr Trump's call, laying the blame for stalled peace talks in the Middle East with Palestine.
"They really don't want peace in any permanent sense. Otherwise all the money will dry up," he said.
Greens Senator Janet Rice said it was an extraordinarily provocative move by the US.
"For Trump to be taking this action is just going to be increasing hostilities," she told reporters.