The latest move by Trump breaks one of his campaign pledges to move the embassy to Jerusalem.
In a memorandum to Secretary of State Rex Tillerson, Trump said that "it is necessary, in order to protect the national security interests" of the United States.
The 1995 Jerusalem Embassy Act requires the US embassy to move to Jerusalem, but every US president since then has signed a six-month waiver delaying the decision.
"While President Donald J Trump signed the waiver under the Jerusalem Embassy Act and delayed moving the US Embassy in Israel from Tel Aviv to Jerusalem, no one should consider this step to be in any way a retreat from the president's strong support for Israel and for the United States-Israel alliance.
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"Trump made this decision to maximise the chances of successfully negotiating a deal between Israel and the Palestinians, fulfilling his solemn obligation to defend America's national security interests," the White House said.
But, as he has repeatedly stated his intention to move the embassy, the question is not if that move happens, but only when, it added.
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