While Israel welcomed the news, Palestinian officials declared the Mideast peace process 'finished' and Turkey announced it would host a meeting of Islamic nations next week to give Muslim countries' leaders an opportunity to coordinate a response.
"I have determined that it is time to officially recognize Jerusalem as the capital of Israel," President Trump said in a controversial address from the White House on Wednesday afternoon. He also directed the State Department to "begin preparation to move the American Embassy from Tel Aviv to Jerusalem."
Trump's announcement fulfills a campaign promise while threatening to unsettle volatile politics in the region. It's a dramatic shift from American foreign policy for the last few decades, and breaks with longstanding international practices. No nation has an embassy in Jerusalem.
Trump said previous presidents have "failed to deliver" on pledges to acknowledge Jerusalem as the capital of Israel. "I am delivering," he said in a speech braodcast live around the world.
"Today we finally acknowledge the obvious," he said. "This is nothing more or less than a recognition of reality."
For decades, world powers -- including the U.S. -- have refrained from taking sides in that dispute by locating their embassies in Tel Aviv and avoiding any reference to Jerusalem as a part of Israel.
In Palestine, U.S. and Israeli flags were burned and Hamas declared Friday a 'day of rage', raising the spectre of mass violence in the occupied territories.
Earlier the Pope made a plea for Trump to rethink urgently and spoke out at his weekly general audience in Rome .
'I make a heartfelt appeal so that all commit themselves to respecting the status quo of the city, in conformity with the pertinent resolutions of the United Nations,' Pope Francis said.
The pope told thousands of people at his general audience: 'I cannot keep quiet about my deep concern about the situation that has been created in the last few days.'
Turkish Foreign Minister Mevlut Cavusoglu said the 'whole world is against' Trump's move, and the supreme leader of Iran, Israel's staunchest enemy, said Iran will "show no tolerance" toward any change in the status of the holy city.
Ayatollah Sayed Ali Khamenei, said on Wednesday that the US decision to announce Quds as the capital of occupied Palestine was a move made "out of despair and debility" because "their hands are tied and they can't achieve their goals".
Ayatollah Khamenei, who is stridently anti-Israel, told government officials: "Victory belongs to Islamic Ummah. Palestine will be free, the Palestinian nation will achieve victory."
Iran leader has previously said that Israel "will not see the next 25 years".
Iran does not recognize Israel, and supports resistance groups like Lebanese Hezbollah and Palestinian Hamas.
The harsh global reaction cast questions about the feasibility of a brewing U.S. peace plan that is expected to be presented by the White House in the near future.
Trump would effectively be making a declaration of war, the Palestinians' chief representative to Britain said Wednesday.
'If he says what he is intending to say about Jerusalem being the capital of Israel, it means a kiss of death to the two-state solution,' Manuel Hassassian said in a BBC interview.
'He is declaring war in the Middle East, he is declaring war against 1.5 billion Muslims [and] hundreds of millions of Christians that are not going to accept the holy shrines to be totally under the hegemony of Israel,' Hassassian added.
The Palestinians seek east Jerusalem as the capital of a future independent state and fear that Trump's declaration essentially imposes on them a disastrous solution for one of the core issues in the Israeli-Palestinian conflict.
Jerusalem -- specifically its eastern Old City, home to important shrines of Judaism, Christianity and Islam -- is at the heart of the Israeli-Palestinian conflict.
Israeli captured Arab East Jerusalem, home to third holiest mosque in Islam after Mecca and Medina, from Jordan in the 1967 Middle East War then later annexed it in a move not recognized internationally. Palestinians want it to be the capital of a future independent state and resolution of its status is fundamental to any peace-making.
'There is no way that there can be talks with the Americans. The peace process is finished. They have already pre-empted the outcome,' said Palestinian official Hanan Ashrawi. 'They cannot take us for granted.'
The U.S. decision 'destroys the peace process,' added Palestinian Prime Minister Rami Hamdallah. Top Palestinian officials were meeting Wednesday to plot their course forward.
ANGRY IN GAZA
In the Palestinian coastal enclave of Gaza, demonstrators chanted "Death to America", "Death to Israel" and "Down with Trump". They also burned posters depicting the U.S., British and Israeli flags.
Youssef Mohammad, a 70-year-old resident of a refugee camp, said Trump's move would be a test for Arab leadership at a time of regional chaos and shifting alliances.
"Let him do it. Let's see what Arab rulers and kings will do. They will do nothing because they are cowards," the father of eight said.
The Jerusalem uproar could affect Egyptian-brokered efforts to bring Gaza, which has been under Hamas control for a decade, back under the authority of U.S.-backed Palestinian President Mahmoud Abbas, who favors negotiation with Israel.
Hamas spokesman Hazem Qassem said Trump's planned moved showed the United States was biased.
"The United States was never a neutral mediator in any cause of our people. It has always stood with the occupation (Israel)," he said.
He said Abbas' administration should "rid itself of the illusion that rights can be achieved through an American-backed deal".
Israel's prime minister, Benjamin Netanyahu, said on Facebook that 'Our historical national identity is receiving important expressions every day.' He said he would comment further later in the day.
Other members of his Cabinet were more forthcoming. Education Minister Naftali Bennett, head of the nationalist Jewish Home party, praised what he called Trump's 'bold and yet natural' move.
'The sooner the Arab world recognizes Jerusalem as our capital, the sooner we will reach real peace. Real peace that is not predicated on an illusion that we are going to carve up Jerusalem and carve up Israel,' Bennett said.
Russia, a key Mideast player, expressed its concern about a 'possible deterioration.'
China, which has good ties with Israel and the Palestinians, expressed concerns over 'possible aggravation of regional tensions.'
Chinese Foreign Ministry spokesman Geng Shuang said during a news briefing that the status of Jerusalem was a complicated and sensitive issue and China was concerned the U.S. decision 'could sharpen regional conflict.'
Two leading Lebanese newspapers published front-page rebukes of Trump.
The declaration of Jerusalem as Israel's capital carries deep symbolic significance and could have dangerous consequences. The competing claims to east Jerusalem have frequently boiled over into deadly violence over the years.
The United States has never endorsed the Jewish state's claim of sovereignty over any part of Jerusalem and has insisted its status be resolved through Israeli-Palestinian negotiation.
The mere consideration of Trump changing the status quo sparked a renewed U.S. security warning on Tuesday. America's consulate in Jerusalem ordered U.S. personnel and their families to avoid visiting Jerusalem's Old City or the West Bank, and urged American citizens in general to avoid places with increased police or military presence.
Trump, as a presidential candidate, repeatedly promised to move the U.S. Embassy. However, U.S. leaders have routinely and unceremoniously delayed such a move since President Bill Clinton signed a law in 1995 stipulating that the United States must relocate its diplomatic presence to Jerusalem unless the commander in chief issues a waiver on national security grounds.