US President Donald Trump will recognise Jerusalem as Israel’s capital, senior administration officials have said.
He is due to announce the controversial decision in a speech later.
Mr Trump is also expected to approve moving the US embassy from Tel Aviv to Jerusalem, but not for several years.
Israel welcomes the changes but the Palestinians and Arab leaders have warned they will jeopardise any Middle East peace process.
Saudi Arabia, an ally of the US, called the changes “a flagrant provocation to Muslims”.
Israel has always regarded Jerusalem as its capital city, while the Palestinians claim East Jerusalem as the capital of a future Palestinian state.
In recognising Jerusalem as Israel’s capital, the US becomes the first country to do so since the foundation of the state in 1948.
What is so contentious about Jerusalem’s status?
The issue goes to the heart of Israel’s conflict with the Palestinians, who are backed by the Arab and wider Islamic world.
The city is home to key religious sites sacred to Judaism, Islam and Christianity, especially in East Jerusalem.
Israel annexed the sector from Jordan after the 1967 Middle East war and regards the entire city as its indivisible capital.
According to the 1993 Israel-Palestinian peace accords, its final status is meant to be discussed in the latter stages of talks.
Israeli sovereignty over Jerusalem has never been recognised internationally and all countries maintain their embassies in Tel Aviv.
Since 1967, Israel has built a dozen settlements, home to about 200,000 Jews, in East Jerusalem. These are considered illegal under international law, though Israel disputes this.
In recognising Jerusalem as Israel’s capital, the US could reinforce Israel’s position that settlements in the east are valid Israeli communities.
What is the US proposing?
Trump administration officials said recognising Jerusalem as Israel’s capital was seen as “a recognition of reality” by the US government.
However, specific boundaries of the city would remain subject to a final status agreement, the official said. The status of holy sites would not be affected.
Mr Trump would also direct the state department to begin the process of moving the US embassy to Jerusalem – but this could take several years as it still has to be designed and built and security concerns would need to be addressed.
He originally promised the move to pro-Israel voters during his campaign for the presidency.
The US officials added that the president would still sign a regular waiver blocking the embassy’s move from Tel Aviv to Jerusalem until the new building was completed.
Successive presidents have signed waivers to get round the 1995 Jerusalem Embassy Act, which mandates moving the embassy. They have done this so that the US can be seen as neutral in Middle East peace negotiations.
Mr Trump has vowed to pursue a peace agreement between Israelis and Palestinians, led by his son-in-law and top adviser Jared Kushner.
An administration official said the new US policy on Jerusalem was not designed to favour Israel in that process.