Australia has reversed a decision made four years ago to recognize West Jerusalem as the capital of Israel.
Foreign Minister Penny Wong said the 2018 move undermined peace and "put Australia out of step with the majority of the international community".
He stressed that Australia remains a "firm friend" of Israel. Its embassy will remain in Tel Aviv.
The Israeli government called the U-turn short-sighted and extremely disappointing and summoned the Australian ambassador.
Israeli Prime Minister Yair Lapid said, "As a hasty response to a misreport in the media, the way this decision was taken in Australia, we can only hope that the Australian government takes other matters more seriously and Managed professionally." in a statement.
"Jerusalem is the eternal and united capital of Israel and nothing will ever replace it."
But Palestinian Prime Minister Mohamed Shtayyeh welcomed the "wise and bold decision", which he said "respects Australia and alignment with the values of truth, justice and freedom, and the legitimate rights of the Palestinian people as acknowledged by international legitimacy".
The situation in Jerusalem is one of the most sensitive issues at the center of the Israeli-Palestinian conflict.
Then-US President Donald Trump drew international criticism in December 2017 when he reversed decades of US foreign policy by recognizing the ancient city as Israel's capital. In May 2018, the US Embassy was moved from Tel Aviv to Jerusalem.
Months later, then-Prime Minister of Australia Scott Morrison announced that his government would follow suit.
At the time, Mr Morrison said Australia would recognize West Jerusalem immediately, but would not move its embassy from Tel Aviv until a peace deal was reached.
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Mr Morrison's government lost power in an election in May of this year.
On Tuesday, Foreign Minister Penny Wong called the former government's decision to win over Jewish voters ahead of elections in Australia a "whimsical drama".
"I am sorry that the position in Australia has changed as a result of Mr Morrison's decision to play politics, and these changes have caused distress to many in the Australian community who care deeply about this issue," she said.
It reaffirmed the country's "past and old" position that the situation in Jerusalem should be resolved as part of peace talks between Israel and the Palestinian people.
The UK is currently considering moving its embassy to Jerusalem. Honduras, Guatemala and Kosovo are the only countries other than the US that have embassies in the city.
While Israel regards Jerusalem as its "eternal and undivided" capital, Palestinians claim East Jerusalem – which Israel captured in the 1967 Middle East War and effectively annexed it in 1980 – as the capital of the future state.
Israel's sovereignty over Jerusalem has never been recognized internationally, and according to the 1993 Israel–Palestinian peace agreement, the final status of Jerusalem is to be discussed in the later stages of peace talks.
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