The announcement shattered decades of US foreign policy and triggered an angry response from Palestinians, who took to the streets 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 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, the Independent reported.
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.
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 in the southern Gaza strip.
Trump made the announcement that the US would recognise Jerusalem (Quds) as the capital of Israel - and begin efforts to move its embassy there - during a televised address on Wednesday evening.