President Donald Trump will recognize Jerusalem as Israel’s capital, senior White House officials have said.
The president is due to announce the controversial decision in a speech later.
Donald Trump is also expected to approve moving the US embassy from Tel Aviv to Jerusalem, but not for several years.
Israel welcomes the changes but the Palestinians and Arab leaders have warned they will jeopardize any Middle East peace process.
Pope Francis called for the “status quo” to be respected. Dialogue would only come through “recognizing the rights of all people” in the region, he said.
Saudi Arabia, an ally of the US, called the new policy “a flagrant provocation to Muslims”.
Israel has always regarded Jerusalem as its capital city, while the Palestinians claim East Jerusalem as the capital of a future Palestinian state.
In recognizing Jerusalem as Israel’s capital, the US becomes the first country to do so since the foundation of Israel in 1948.
The issue goes to the heart of Israel’s conflict with the Palestinians, who are backed by the Arab and wider Islamic world.
Jerusalem is home to key religious sites sacred to Judaism, Islam and Christianity, especially in East Jerusalem.
Israel annexed the sector from Jordan after the 1967 Middle East war and regards the entire city as its indivisible capital.
According to the 1993 Israel-Palestinian peace accords, its final status is meant to be discussed in the latter stages of talks.
Israeli sovereignty over Jerusalem has never been recognized internationally and all countries maintain their embassies in Tel Aviv.
Since 1967, Israel has built a dozen settlements, home to about 200,000 Jews, in East Jerusalem. These are considered illegal under international law, though Israel disputes this.
In recognizing Jerusalem as Israel’s capital, the US could reinforce Israel’s position that settlements in the east are valid Israeli communities.
Trump administration officials said recognizing Jerusalem as Israel’s capital was seen as “a recognition of reality” by the US government.
However, specific boundaries of Jerusalem would remain subject to a final status agreement, the official said. The status of holy sites would not be affected.
President Trump would also direct the state department to begin the process of moving the US embassy to Jerusalem – but this could take several years as it still has to be designed and built and security concerns would need to be addressed.
Donald Trump originally promised the move to pro-Israel voters during his campaign for the presidency.
The White House officials added that the president would still sign a regular waiver blocking the embassy’s move from Tel Aviv to Jerusalem until the new building was completed.
Successive presidents have signed waivers to get round the 1995 Jerusalem Embassy Act, which mandates moving the embassy. They have done this so that the US can be seen as neutral in Middle East peace negotiations.
Donald Trump has vowed to pursue a peace agreement between Israelis and Palestinians, led by his son-in-law and top adviser Jared Kushner.
An administration official said the new US policy on Jerusalem was not designed to favor Israel in that process.
Ahead of his formal announcement, President Trump phoned several regional leaders to inform them of the embassy move.
Reacting to news of President Trump’s impending announcement, Saudi Arabia’s King Salman told him the relocation of the embassy or recognition of Jerusalem as Israel’s capital “would constitute a flagrant provocation of Muslims, all over the world”.
Meanwhile, Hamas leader Ismail Haniya called for protests on December 8 and Jordan’s King Abdullah said the decision would “undermine efforts to resume the peace process”.
Egypt’s President Abdul Fattah al-Sisi urged President Trump “not to complicate the situation in the region” while Turkey’s President Recep Tayyip Erdogan said his country could sever ties with Israel.
China also warned of an escalation in tensions in the Middle East.
France, the EU and the Arab League have also expressed concern.
US government employees and their families have been barred from personal travel in Jerusalem’s Old City and the West Bank for security reasons ahead of expected protests.
Israel’s intelligence minister Israel Katz told Army Radio that Israel was “preparing for every option”, including an outbreak of violence.