In a speech at the White House later on Wednesday, the US President will announce the start of a process to move the US embassy from its current location in Tel Aviv to “a site in Jerusalem”.
Around 1,000 staff members will need to be re-located, with Congress assisting the State Department to find a new site, before a new building is designed and constructed.
Security is high on the White House agenda when sourcing a new spot for the embassy.
Mr Trump will say: “We don’t just put [a] plaque on [the] door. [There are] very strict security guidelines that have to be followed before [the] plaque goes up.”
The President will also address “long overdue” facts, saying that the US is going to be “honest” about a “seven-decade old fact that Jerusalem is the capital of Israel”.
The recognition of Jerusalem will be an acknowledgement of “historical and current reality”, rather than a political statement, US officials have said.
Looking back over 22 years, Mr Trump will say that it “seems clear now that the physical location of the embassy is not material to a peace deal”. The relocation of the embassy was one of his campaign pledges.
He will also say that he is prepared to support two-state solution, if it is agreed to by the two parties.
The highly significant move would end decades of US policy that Jerusalem’s status must be decided in negotiations with the Palestinians, and give legitimacy to Israel’s claim over the entire city.
Palestinians want East Jerusalem to be the capital of their future state and the international community does not recognise Israel’s claim.
The city is home to sites that are holy to Muslims, Jews and Christians.
Israel captured East Jerusalem in 1967 and annexed it, but the move was not recognised internationally.
A statement from Palestinian President Mahmoud Abbas’ office said Mr Trump had called the President and told him of “his intention to move the US embassy from Tel Aviv to Jerusalem”.
Mr Abbas “warned of the dangerous consequences of such a decision on the peace process, security and stability in the region and the world”, the statement added.
Political factions led by Mr Abbas’s Fatah movement have called for daily protest marches.
The US has responded by ordering government employees to avoid Jerusalem’s Old City and the West Bank.
World leaders have warned that Mr Trump’s move would inflame tensions in the region, while Islamist movement Hamas – as well as Turkey’s president – spoke of “red lines” being crossed.
Egypt’s president, Abdel Fattah el-Sisi, spoke to Mr Trump on the phone and told him there was no need to “complicate” matters in the region, a statement from Cairo said.
UN Secretary-General Antonio Guterres said he opposed any unilateral action that could undermine a two-state solution.
Israel’s mayor of Jerusalem, Nir Barkat, said that moving the embassy could take “two minutes”.
“They just take the symbol of the consulate and switch it to the embassy symbol – two American Marines can do it in two minutes, and give the ambassador David Friedman a space to sit in,” Mr Barkat told Israel Radio.
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Israel says the city has been the capital of the Jewish people for 3,000 years and the country’s capital for 70 years.
US officials added that an announcement on the embassy’s relocation would probably not happen for around six months, but planning would begin straight away.