Donald Trump has said the US “officially recognises Jerusalem as the capital of Israel”, sparking warnings it will lead to violence and seriously harm the Middle East peace process.
The President said the move was “long overdue” and a “necessary condition” for achieving peace.
He also confirmed that planning would begin to move the US embassy from Tel Aviv to Jerusalem.
Speaking from the White House, Mr Trump overturned decades of US policy, declaring: “Israel is a sovereign nation with the right like every other sovereign nation to determine its own capital.
“Acknowledging this as a fact is a necessary condition for achieving peace.”
Iran warned it would “provoke Muslims” and lead to an “increase in radical, angry and violent behaviour”.
Mr Trump stressed that his declaration was not a judgement on the final status of the disputed city or any borders.
“[It] is not intended in any way to reflect a departure from our strong commitment to facilitate a lasting peace,” he said.
Vice President Mike Pence will travel to the region in the coming days, with protests expected to intensify and US government employees and citizens abroad warned to exercise caution.
Islamist group Hamas said the decision “opened the gates of hell” on US interests in the Middle East.
Jerusalem is a flashpoint because it is home to sites which are holy to Muslims, Jews and Christians.
Most countries agree its status can only be settled by inclusive negotiations and do not recognise Israel’s claim to the entire city.
Israel insists it has been the capital of the Jewish people for 3,000 years and the country’s capital for 70 years.
Its prime minister, Benjamin Netanyahu, praised a “courageous and just decision” and said it was a “historic day”, as he urged other countries to follow America’s lead.
David Keyes, Mr Netanyahu’s spokesman, told Sky News it “moves peace forward in a very clear and simple way”.
He said it corrected “a historical anomaly, a great historical mistake that denied Israel the same right that every other country around the world has, which is to define where its capital is”.
President Mahmoud Abbas reacted to the US move by calling Jerusalem the “eternal capital of the state of Palestine”.
World powers have also been quick to condemn Mr Trump’s move.
British Prime Minister Theresa May said in a statement: “We disagree with the US decision to move its embassy to Jerusalem and recognise Jerusalem as the Israeli capital before a final status agreement…
“Our position on the status of Jerusalem is clear and long-standing: it should be determined in a negotiated settlement between the Israelis and the Palestinians, and Jerusalem should ultimately be the shared capital of the Israeli and Palestinian states.”
France’s president Emmanuel Macron told reporters: “This decision is a regrettable decision that France does not approve of and goes against international law and all the resolutions of the UN Security Council.”
Iran’s foreign ministry said the “provocative and unwise decision” would “provoke Muslims and inflame a new intifada and an escalation of radical, angry and violent behaviour”.
Turkey called it “irresponsible” while Egypt’s foreign ministry also rejected the US President’s declaration.
UN chief Antonio Gutteres said he was “against any unilateral measures that would jeopardise the prospect of peace for Israelis and Palestinians” and that there was “no plan B” to a two-state solution.