The Israeli military deployed hundreds of more troops to the occupied West Bank amid uncertainty over the fallout from Trump's decision.
A mass demonstration was being planned for the West Bank city of Ramallah later. Several thousand marched in the Hamas- run Gaza Strip last night, burning US and Israeli flags while chanting "Death to America" and "Death to Israel."
Trump's announcement prompted an almost universal diplomatic backlash that continued today, with Turkish President Recep Tayyip Erdogan warning it would put the region in a "ring of fire".
Trump's defiant move -- making good on a pledge made during his 2016 presidential campaign -- ends seven decades of US ambiguity on the status of the Holy City, which is claimed by both Israelis and Palestinians.
More From This Section
Trump said this marks the start of a "new approach" to solving the Israeli-Palestinian conflict.
"It is time to officially recognise Jerusalem as the capital of Israel," he said in a speech from the White House on Wednesday, urging calm and "the voices of tolerance to prevail over the purveyors of hate."
Hamas leader Ismail Haniya called for a new intifada, or uprising, in a speech in Gaza City.
Palestinian president Mahmud Abbas said Trump's move disqualifies the United States from its traditional role as peace broker in the Middle East conflict.
Saudi Arabia called the move "unjustified and irresponsible."
Erdogan asked: "Hey Trump! What do you want to do?
"What kind of approach is this? Political leaders do not stir things up, they seek to make peace," he said, addressing the US leader directly in one of his most familiar rhetorical habits.
"By this decision, America became a very small country, like any small country in the world, like Micronesia," Salah Zuhikeh, 55, told AFP in Jerusalem's Old City.
"America was a great country for us and everyone."
Trump's move left many angry US allies struggling to find a diplomatic response.
Through gritted teeth, Britain described the move as "unhelpful" and France called it "regrettable." Germany said plainly that it "does not support" Trump's decision.
The leaders of Muslim nations meanwhile deployed ever- harsher rhetoric to describe Trump's decision, while Jordan and the Palestinians requested an emergency meeting of Arab League foreign ministers.
Trump also kicked off the process of moving the US embassy from Tel Aviv to Jerusalem.
In doing so, he begins to make good on a campaign promise dear to US evangelical Christian and right-wing Jewish voters -- as well as donors.
Trump's predecessors, from Bill Clinton to George Bush, had made the same promise, but quickly reneged upon taking office.
Israel seized Arab east Jerusalem in the Six-Day War of 1967 and later annexed it in a move never recognised by the international community.
The Palestinians want the eastern sector as the capital of their future state.
Several peace plans have unravelled in the past decades over the issue of how to divide sovereignty or oversee holy sites in Jerusalem.
The international community does not formally recognise the ancient city as Israel's capital, insisting the issue can only be resolved in negotiations -- a point reiterated by UN chief Antonio Guterres in the wake of Trump's decision.
Trump insisted the move did not prejudge final talks, saying it simply reflected the reality that west Jerusalem is and will continue to be part of Israel under any settlement.