The announcement shattered decades of US foreign policy and triggered an angry response from Palestinians, who took to the streets burning flags and tires and chanting anti-American slogans.
Protests also broke out in parts of Jordan's capital Amman inhabited by Palestinian refugees. In the Baqaa refugee camp on Amman's outskirts, hundreds roamed the streets denouncing Mr Trump and urging Jordan to scrap its 1994 peace treaty with Israel.
"Down with America...America is the mother of terror," they chanted.
In the West Bank town of Bethlehem, angry Palestinians switched off Christmas lights at Jesus' traditional birthplace.
A tree adorned with lights outside Bethlehem's Church of the Nativity, where Christians believe Jesus was born, and another in Ramallah, next to the grave of Palestinian leader Yasser Arafat, were plunged into darkness.
All Palestinian factions called for a general strike and protest rallies at midday on Thursday.
In Jabaliya refugee camp in the northern Gaza Strip, hundreds of Palestinians turned out to demonstrate against the decision, which risks inflaming tensions in the region.
Similar scenes were witnessed in the main square of Gaza City, where protesters waved national flags and pictures of late Palestinian president Yasser Arafat, and in the southern Gaza strip.
Mr Trump made the announcement that the US would recognise Jerusalem as the capital of Israel - and begin efforts to move its embassy there - during a televised address on Wednesday evening.
The move triggered a wave of condemnation from world leaders, with objections coming from a wide array of presidents and prime ministers.
Only the Phillipines and the Czech Republic signalled they may follow Mr Trump's lead and move their embassies from Tel Aviv.
Prime Minister Benjamin Netanyahu hailed Mr Trump's announcement as an "important step towards peace", and Israeli opposition leaders echoed his praise.
However, Palestinian President Mahmoud Abbas said Mr Trump's shift serves extremist groups that want religious war and signals US withdrawal from being a peace mediator.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies