Israeli Prime Minister Benjamin Netanyahu on Wednesday hailed US President Donald Trump's decision to recognise Jerusalem as Israel's capital and move the US embassy to the city as a "historic day".

In a speech in Washington, Trump said his announcement marked the beginning of a new approach to the Israeli-Palestinian conflict.

"We're profoundly grateful for the President for his courageous and just decision to recognise Jerusalem as the capital of Israel and to prepare for the opening of the US embassy here," said Netanyahu, in a pre-recorded video message.

"I call on all countries that seek peace to join the United States in recognising Jerusalem as Israel's capital and to move their embassies here," he said.

Netanyahu also said any peace deal with the Palestinians must include Jerusalem as Israel's capital and he urged other countries to follow the US lead by also moving their embassies to the city.

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