Donald Trump tore up decades of convention on Wednesday by declaring the United States now recognised Jerusalem as Israel's capital city.
In a speech televised from the White House, the US President said he had taken the decision because “we cannot solve our problems by making the same failed assumptions and repeating the same failed strategies of the past”.
He also repeated his country’s support of a two-state solution and said he would do “everything in my power to help forge such an agreement.”
The announcement came despite Western nations, including Britain, and Muslim countries cautioning him against the move.
“This is a long overdue step to advance the peace process and to work towards a lasting agreement,” Mr Trump said in his speech.
“Israel is a sovereign nation, with the right like every other sovereign nation to determine its own capital. Acknowledging this is a fact is a necessary condition for achieving peace.”
Mr Trump said his predecessors as president over the past twenty years had repeatedly waived a US law requiring the United States to relocate its Israeli embassy from Tel Aviv to Jerusalem.
He said this process had not worked: “After more than two decades of waivers, we are no closer to a lasting peace agreement between Israel and the Palestinians.
“It would be folly to assume that repeating the exact same format would now produce a different or better result.
“Therefore I have determined that it is time to officially recognise Jerusalem as the capital of Israel.”
The US State Department would be instructed to begin preparations to relocate the embassy, beginning the process of “hiring architects, engineers and planners so a new embassy, when completed, will be a magnificent tribute to peace.”
Immediately after his remarks Mr Trumps signed a waiver delaying the decision to relocate the embassy for a further six months, although it was not immediately clear if this was for the final time.
On the prospects for peace with the Palestinians, Mr Trump said the decision “is not intended in any way to reflect a departure from the strong commitment to facilitate a lasting peace agreement.”
He continued: “We want an agreement that is a great deal for the Israelis and a great deal for the Palestinians.
“We are not taking a final position on any of final status issues, including the specific boundaries of the Israeli sovereignty in Jerusalem, or the resolution of contested borders.
“Those questions are up to the parties involved.”
Theresa May, the British Prime Minister, said: "We disagree with the US decision to move its embassy to Jerusalem and recognise Jerusalem as the Israeli capital before a final status agreement. We believe it is unhelpful in terms of prospects for peace in the region. The British Embassy to Israel is based in Tel Aviv and we have no plans to move it.
“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. In line with relevant Security Council Resolutions, we regard East Jerusalem as part of the Occupied Palestinian Territories.
“We share President Trump’s desire to bring an end to this conflict. We welcome his commitment today to a two-state solution negotiated between the parties, and note the importance of his clear acknowledgement that the final status of Jerusalem, including the sovereign boundaries within the city, must be subject to negotiations between the Israelis and the Palestinians.
“We encourage the US Administration to now bring forward detailed proposals for an Israel-Palestinian settlement.
“To have the best chances of success, the peace process must be conducted in an atmosphere free from violence. We call on all parties to work together to maintain calm.”
Jeremy Corbyn, the Labour leader, tweeted: "Trump's recognition of Jerusalem as Israel's capital, including occupied Palestinian territory, is a reckless threat to peace.
"The British Government must condemn this dangerous act and work for a just and viable settlement of the conflict."