President Donald Trump said his phone call with Israeli Prime Minister Benjamin Netanyahu on Sunday was "very nice".
"I applaud President Trump on his historic announcement that the White House has begun discussions regarding moving the US Embassy to Jerusalem", the statement said.
Earlier Sunday, Netanyahu thanked Trump for his inaugural speech pledge to battle radical Islamic militants.
Congress approved a law in 1995 describing Jerusalem as the capital of Israel but successive presidents have declined to move the embassy. "It is time to act and with the help of God we will do many good things together, for Israel and for the world".
Palestinians widely view the embassy move as the end of the peace process.
Palestinian presidency condemned Sunday the approval of Israeli authorities to build more settlement housing units in east Jerusalem and called for the implementation of the UN Security Council resolution on settlements.
Most countries consider settlement activity illegal and an obstacle to peace.
The American abstention was also not taken kindly by the US President Donald Trump.
Palestinians seek diplomatic recognition for their independent state on the territories of the West Bank, including East Jerusalem, which is partially occupied by Israel, and the Gaza Strip. It is also in a strategic location in the middle of the West Bank that could impede the establishment of a future Palestinian state.
Mr Trump's nominee for USA ambassador to the United Nations, Nikki Haley, has echoed his condemnation of the UN over its treatment of Israel at her Senate confirmation hearing earlier in the week.
"Moving the embassy, if it takes place, will ignite more fires in the region, where worldwide officials are trying to find arrangements and solutions to different issues, including the Palestinian issue". "He's a deal maker, and he will take a very tough position at the beginning and then negotiate over time, because that's the way he does business".
He asserted that Israel considers itself above worldwide law, arguing that it is about time that the world starts reducing its relationship with Tel Aviv in order to show that the global community needs to be respected.
"If America puts its embassy there it effectively recognises Jerusalem as the capital of Israel".