In another sign that the White House is proceeding cautiously, David Friedman, Trump's ambassador to Israel, plans to work out of the current embassy in Tel Aviv rather than out of the US Consulate in Jerusalem, as some had urged him to do.
Days before the U.S. president starts a Middle East trip that includes meetings with Israeli and Palestinian leaders, Tillerson told NBC channel that Trump's decision would depend greatly on how it is seen by governments in the region, including "whether Israel views it as being helpful to a peace initiative or perhaps a distraction".
Netanyahu said that "not only would moving the embassy not harm the peace process, but to the contrary".
The statement from Mr. Netanyahu's office concluded: "This is the clear and consistent position of Prime Minister Netanyahu, which he reiterated today".
Israel annexed Jerusalem in 1967 and regards the entire city as its eternal capital.
A senior Israeli official said that Netanyahu expressed his desire that the embassy be moved to Jerusalem in his meetings with Trump and Tillerson during his latest visit in Washington. Palestinian leaders said they would withdraw their recognition of Israel as a state if the Trump administration pursued such a move.
It was not the first time a member of the Trump administration referred to "Palestine", which the USA does not recognize.
Israeli officials appear to be growing increasingly nervous over Trump's visit, when he is expected to make an attempt at relaunching long-stalled peace talks with the Palestinians. Under extremely tight security - 10,000 members of the Israeli police will take part in "Operation Blue Shield" protecting the president - Trump and his family will visit the Western Wall and likely pray at the holy site.
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According to the report, top USA officials close to the president warned that the recognition of Jerusalem as Israel's capital could have broad regional risks, echoing recommendations from leaders in the region, including Jordan's King Abdullah who warned Trump that an embassy move would have a negative impact on the peace process.
Prime Minister Benjamin Netanyahu's Office denied the claim on Monday evening, issuing a statement that said: "The things published on Fox News are a lie".
There are ongoing rumors and undertones that it is the Israeli administration, and not the White House, which is delaying the move.
He said Trump's decision would be informed by the parties - "and most certainly Israel's view on whether Israel views it as being helpful to a peace initiative or perhaps a distraction".
Current US policy is that East Jerusalem's status should be determined by Israeli-Palestinian negotiations.
Besides his one-day stay in Israel, President Trump will also visit Saudi Arabia for his first overseas visit since his inauguration in January. It's part of the West Bank. The US president could now anger both Israelis and Palestinians with his visit.
The new United States ambassador to Israel, David Friedman, departed from diplomatic protocol by visiting the Western Wall on Monday.
Trump says he wants to broker an Israeli-Palestinian deal.
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