The US President has been warned his move will plunge the world into a “fire without end" and has been accused of “opening the gates of hell”.
Trump signed off his order and pledged to move the US Embassy from its base in Tel Aviv to Jerusalem.
His decision has thrown out decades of US policy – which planned to use Jerusalem as part of a two-state solution for Israelis and Palestinians.
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The ancient city’s status is considered the capital city of both Israel and Palestine.
Trump's move has now been branded a “kiss of death” and there are feared to be dangerous consequences from his decision.
Day of rage
Palestinian faction Hamas accused Trump of “opening the gates of hell” and threatened a “day of rage”.
“The youth and the Palestinian resistance in the West Bank need to respond with all means available to the US decision that harms our Jerusalem," the statement read.
The group warned the decision about the city was a “red line” and said “the resistance will not allow any desecration”.
Announcing his plan, Trump said: "Jerusalem is not just the heart of three great religions, but it is now also the heart of one one of the most successful democracies in the world.
"Over the past seven decades, the Israeli People have built a country where Jews, Muslims, Christians and people of all faiths are free to live and worship according to their conscience and beliefs.
"The United States remains deeply committed to helping facilitate a peace agreement that is acceptable to both sides. I intend to do everything in my power to help forge such an agreement."
Turkish President Recep Tayyip Erdoğan warned the US risked "plunging the region and the world into a fire with no end in sight".
Recognition of reality
Jerusalem’s status is a major source of division between different religious groups in the Middle East.
The US has claimed the move is a “recognition of reality” and denied it would favour Israel in any peace talks with Palestine.
Prime Minister Theresa May 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."