Palestinians slam Australia's move on Jerusalem

Western Wall and Rock of the Dome in Jerusalem Israel

The status of Jerusalem has long been a highly contested issue

Israel regards all of the city - including the eastern sector it annexed after the 1967 Middle East war - as its capital while Palestinian leaders, with broad global backing, want East Jerusalem as the capital of a future state they hope to establish in the occupied West Bank and the Gaza Strip. However, they will not move the embassy on the immediate basis.

The Australian Government will recognise West Jerusalem as the capital of Israel but will not immediately move its embassy from Tel Aviv.

Morrison first announced he was "open-minded" to an embassy shift to Jerusalem ahead of a crucial October by-election in a Sydney constituency with a sizeable Jewish population.

Australia on Saturday formally recognized West Jerusalem as Israel's capital, becoming the third country to follow the example of the United States.

The Foreign Affairs Department has warned Australians travelling to Indonesia to be aware of possible protests ahead of an expected announcement by Prime Minister Scott Morrison over the location of Australia's embassy in Israel.

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Palestinians, meanwhile, want East Jerusalem to be recognised as the capital of a Palestinian state.

Meanwhile, Australia plans to establish a defense and trade office in Jerusalem and is beginning a search for an appropriate embassy site.

The contentious inauguration in May, timed to coincide with the 70th anniversary of Israel's independence, escalated clashes between Israeli troops and Palestinians in the Gaza Strip.

"This is a decision which is all risk and no gain", she said, adding it puts Australia "out of step" with the worldwide community. They considered illegal under worldwide law.

Top Palestinian official Saeb Erekat issued a withering response, calling on Arab nations to sever their ties with Canberra and saying the decision was "one wherein petty domestic politics steer irresponsible policies that contradict world peace and security".

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Both Israel and the Palestinians claim Jerusalem as their capital.

The prime minister said it was in Australia's interests to support "liberal democracy" in the Middle East and took aim at the United Nations, which he said was a place Israel is "bullied".

Mr Morrison will also draw on the settlement activity in the Palestinian territories and say the current settlements "undermine peace".

On Thursday, the Israeli army launched raids into the Palestinian city of Ramallah after a Palestinian shot dead two Israeli soldiers at a bus stop in the occupied West Bank.

Israel captured east Jerusalem in the 1967 Mideast war and annexed it in a move that is not internationally recognized.

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"This sabotages any real possibility for a future just agreement and further emboldens Israel to continue with its daily human rights violations of Palestinians", APAN president Bishop George Browning said in a statement.

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