Image copyright AFP Image caption Dozens of Palestinians in Jerusalem took part in the march on Thursday, some wearing masks to avoid identifying themselves
Israel’s security cabinet says it has decided not to allow the US to open a Consulate in Jerusalem.
A US State Department spokeswoman told reporters earlier that Washington had urged Israel to approve the deal and that it was in the final stages of review.
The move was aimed at helping to normalise ties between the two countries.
Israel is also closing the Palestinian ambassador’s office in Tel Aviv.
According to a statement released by Israel’s prime minister’s office, the cabinet said that in its meeting on Thursday it discussed the list of possible sites for an American Consulate in Jerusalem.
“The security cabinet determined not to allow the United States to locate a consulate in Jerusalem,” it said.
The Foreign Ministry responded to the declaration by saying it had “not gone against agreement”.
Image copyright AFP Image caption Palestinian President Mahmoud Abbas also has his office in the West Bank, not East Jerusalem
“The security cabinet stated its position to the United States that there is no room in Jerusalem for an American Consulate for Palestinians or other foreigners in the city,” the statement said.
“Following the US embassy move, the security cabinet declared that Jerusalem is an undivided capital of Israel.”
While Israel describes Jerusalem as its capital, Palestinians see the eastern part of the city as the capital of a future state.
On Wednesday, officials from the two countries confirmed that an agreement had been struck on the location of the US consulate.
The Palestinians welcomed the news, but the Israeli deputy foreign minister, Tzipi Hotovely, said in a radio interview: “This is a gift to the enemies of Israel. It is an attempt to damage Israel’s security, which will make it harder to maintain security and deterrence in the future.”
Many Palestinians travelled to Jerusalem on Thursday to take part in a march against the US plans.
Many held up banners proclaiming Jerusalem as the capital of the state of Palestine, while others protested with signs saying the US was still “occupying” the city.
The US embassy in Israel was moved from Tel Aviv to Jerusalem in May last year. The majority of world leaders have since followed suit, recognising Jerusalem as Israel’s capital, and the city’s future status is one of the thorniest issues in the Israeli-Palestinian conflict.