Trump on December 6 announced that he would recognise Jerusalem as Israel's capital and move the US embassy there from Tel Aviv, triggering protests and strong condemnation.
Even America's closest allies on the 15-member Council, the most powerful body in the UN system, voted for the resolution.
They warned that Trump's announcement about Jerusalem, which upended decades of American policy, threatened to subvert the effort to solve one of the world's most intractable conflicts.
"The fact that this veto is being done in defence of American sovereignty and in defence of America's role in the Middle East peace process is not a source of embarrassment for us; it should be an embarrassment to the remainder of the Security Council," US Ambassador to the UN Nikki Haley has said in defence of exercising veto.
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"What we witnessed here today in the Security Council is an insult. It is one more example of the UN doing more harm than good in addressing the Israeli-Palestinian conflict," she said on the draft resolution that would have called upon all states to refrain from establishing diplomatic missions in Jerusalem.
The resolution calling on Trump to withdraw recognition of Jerusalem as Israel's capital was supported by close allies of the US Britain, France and Japan.
"We disagree with the US decision unilaterally to recognise Jerusalem as the capital of Israel before a final status agreement and to move the US embassy to Jerusalem," said British Ambassador to the UN Matthew Rycroft.
Rycroft said that the status of Jerusalem should be determined through a negotiated settlement between the Israelis and the Palestinians, and should ultimately be the shared capital of the Israeli and Palestinian states.
Expressing hope that the US would return to the international consensus, Permanent Representative of France to the United Nations Francois Delattre warned that there was a risk of converting a political conflict into a religious one, from which only the radicals would gain.
Unilateral actions in the current environment risked raising tensions and setting back the possibilities for negotiations towards the two-State solution that the Russian Federation supported, said the Vladimir Safronkov from Russia.
Riyad H Mansour, Permanent Observer for the State of Palestine, said it is reprehensible that the United States has chosen to disregard international law and undermine its own role in any future peace process.
Palestinians would never accept occupation as a permanent reality, he stressed.
"Those who want peace do not recognise illegal actions and measures but rather recognise the rights of the Palestinian people as enshrined in international law," he said.
Many adversaries has sought to delegitimise the Jewish presence in Jerusalem, but the connection with the people had never been broken, and would never be broken, he vowed.
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