DONALD Trump last night overturned decades of US policy by confirming that he is determined to see Jerusalem recognised as the capital of Israel.

The president claimed in a White House speech that the decision “marks the beginning of a new approach to conflict between Israel and the Palestinians” and said he has deemed the change to be in America's interests.

Trump also said he is putting in motion plans move the US Embassy in Israel to Jerusalem from Tel Aviv. 

World leaders have warned that the move could inflame tensions in the volatile Middle East. By recognising Israel's claim to Jerusalem, Trump is seen by the Palestinians as siding with Israel on the most sensitive issue in the conflict. The Palestinians seek east Jerusalem, which Israel captured in 1967, for their capital.

Israel's Prime Minister Benjamin Netanyahu said in a statement that his country was "profoundly grateful" to Trump, adding his announcement marks a "historic day" and is an "important step towards peace".

Netanyahu said Israel "will continue to work with the president and his team to make that dream of peace come true".

The head of Hamas, which controls the Gaza Strip, accused Trump of disregarding Palestinian feelings with his move. Ismail Haniyeh said in a statement that the Palestinian people "know how to respond properly to the disregard of their feelings and sanctuaries".

He said the decision "will not change the facts of history and geography".

Mahmoud Abbas, president of the State of Palestine and Palestinian National Authority, said Trump had destroyed his credibility as a Middle East peace broker, describing hsi announcement as "a declaration of withdrawal from the role it has played in the peace process".

UN Secretary-General Antonio Guterres spoke out against what he said were "unilateral measures" that jeopardise the prospect for peace for Israelis and Palestinians.

He said the issue of Jerusalem must be resolved through direct negotiations between Israelis and Palestinians.

Guterres told reporters that "in this moment of great anxiety, I want to make it clear: There is no alternative to the two-state solution. There is no Plan B."

He did not mentioned Trump's decision in his remarks.

Guterres said he would do "everything in my power" to promote the return to negotiations by Israeli and Palestinian leaders "and to realise this vision of a lasting peace for both people".

Abbas said the Palestinian leadership will meet in the coming days and consult with Arab leaders to formulate a response. Egypt, the first Arab nation to sign a peace treaty with Israel, in 1979, also denounced Trump's decision.

The statement said Egypt is worried about the impact of the US move on the stability of the region and about its "extremely negative" impact on the peace process.