An expected announcement by President Donald Trump that the US will become the first country to recognise Jerusalem as Israel's capital has been dubbed a "kiss of death" for the Middle East peace process by the Palestinians.
But an Israeli minister urged other countries to follow the US lead.
Mr Trump, expected to confirm the decision later on Wednesday, described the announcement as "long overdue".
"Many presidents have said they want to do something and they didn't do it."
The president's remarks came ahead of his planned speech in Washington.
Mr Trump will also start the process of moving the US embassy from Tel Aviv to Jerusalem.
The two decisions - which would fulfil a campaign promise and appeal to Mr Trump's right-wing base - risk a heated reaction from US allies in the Muslim world and, potentially, protests and unrest.
They also make it difficult for the US to be seen as a neutral mediator in the Middle East peace process.
Pope Francis called for the status quo in Jerusalem to be respected, in line with United Nations resolutions.
Israel occupied East Jerusalem, previously occupied by Jordan, in the 1967 Middle East war and regards the entire city as its indivisible capital.
The Palestinians claim East Jerusalem as the capital of a future state, and according to 1993 Israel-Palestinian peace accords, its final status is meant to be discussed in the latter stages of peace talks.
Israeli sovereignty over Jerusalem has never been recognised internationally, and until now all countries have maintained their embassies in Tel Aviv.
What is so contentious about Jerusalem's status?
The issue goes to the heart of Israel's conflict with the Palestinians, who are backed by the Arab and Islamic worlds.
The city is home to key religious sites sacred to Judaism, Islam and Christianity, especially in East Jerusalem.
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.
If the US recognises Jerusalem as Israel's capital, it will put it out of step with the rest of the international community and reinforce Israel's position that settlements in the east are valid Israeli communities.
What is the US proposing?
Trump administration officials said recognising Jerusalem as Israel's capital was an acknowledgment of "historical and current reality" by the US government.
However, specific boundaries of the city would remain subject to a final status agreement, the officials said. The status of holy sites would not be affected.
Mr 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.
The US 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 on the grounds of national security for the 1995 Jerusalem Embassy Act, which mandates moving the embassy.
How have Israel and the Palestinians reacted?
The Palestinians' representative to the UK, Manuel Hassassian, told the BBC that the changes to US policy on Jerusalem amounted to a "kiss of death" for the two-state solution in peace efforts and were like a "declaration of war".
Israeli Education Minister Naftali Bennett described it as a "big step towards regional peace" and said other countries should move their embassies too.
Theresa May said she would speak to Mr Trump about the US move. The UK's position on Jerusalem had not changed, the prime minister told Parliament.
The city's status should be the subject of negotiation and it should be the shared capital of Israel and a Palestinian state, she added.
Turkey's President Recep Tayyip Erdogan said the step would "play into the hands of terror groups".
The BBC's Barbara Plett-Usher, in Washington, says Mr Trump is expected to try and calm international alarm by stating that the US is prepared to support a two-state solution, if both Israelis and Palestinians agree to it.
But that is not the categorical endorsement of a two-state solution that the Palestinians are looking for, our correspondent adds.
What other reaction has there been?
- Saudi Arabia, an ally of the US, called the new policy "a flagrant provocation to Muslims"
- Hamas leader Ismail Haniya said recognition crossed "all red lines"
- China warned against escalating tensions in the Middle East
- Jordan's King Abdullah said the decision would "undermine efforts to resume the peace process"
- Egypt's President Abdul Fattah al-Sisi urged Mr Trump "not to complicate the situation in the region"
- Turkey called for a summit of Muslim countries in December to discuss the developments
- Iranian President Hassan Rouhani said "Muslims must stand united against this major plot"
Source of frustration
Analysis by Yolande Knell, BBC News, Jerusalem
Israeli leaders will see Mr Trump's announcements as correcting an historic injustice.
It has long been a source of frustration that the US, Israel's closest ally, does not have its embassy in Jerusalem or formally recognise Israeli sovereignty over the city - which is the seat of its government and has 3,000 years of Jewish history.
But Palestinian President Mahmoud Abbas - like other Arab leaders - is warning Mr Trump's moves will jeopardise efforts to broker peace talks and achieve what he has called the "ultimate deal".
The Palestinians want occupied East Jerusalem as the capital of their future state, and in the past even small changes - particularly at the al-Aqsa Mosque compound, known to Jews as Temple Mount - have led to violence.
Already the Islamist group Hamas has warned that the US could trigger a new Palestinian uprising.