US President-elect Donald Trump will nominate David Friedman, a right-wing lawyer known for his staunch support for Israel, as US ambassador to Israel.
Friedman, who has no diplomatic experience, is a supporter of Israel's Jewish-only settlements - which are considered illegal under international law - in the occupied West Bank, including East Jerusalem.
More than 530,000 Israelis live in settlements across the occupied Palestinian territory, according to the Israeli rights group B'Tselem.
Thursday's announcement raised alarm when Friedman said he looked forward to working from "the US embassy in Israel's eternal capital, Jerusalem", the eastern part of which has been occupied by Israeli forces in contravention of international law since 1967.
The US embassy is at present located in Tel Aviv.
The Ramallah-based Palestinian Authority hopes the establishment of a Palestinian state in the West Bank will include East Jerusalem as its capital, while most European and Arab countries reject Israel's claim to sovereignty in the city.
Virtually all embassies to Israel are located in or around Tel Aviv.
Trump said Friedman would "maintain the special relationship" between the US and Israel.
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The statement does not detail how Friedman could work in Jerusalem. However, Trump's advisers have insisted in recent days that the president-elect will follow through on his call for moving the embassy.
"He has made that promise," Trump adviser Kellyanne Conway told reporters on Thursday. "I can guarantee you, just generally, he's a man who is going to accomplish many things very quickly."
One option Trump's allies have discussed would involve Friedman, if confirmed by the Senate, working out of an existing US consulate in Jerusalem. According to a person who has discussed the plan with Trump's advisers, the administration would essentially deem the facility the American embassy by virtue of the ambassador working there.
It is unclear how far those discussions have advanced, or whether Trump himself has been briefed on the proposal. Trump's transition team did not respond to questions about the matter.
Bill Clinton and George W Bush, both former US presidents, promised to move the US embassy to Jerusalem, but backed away from the idea once in office.
Nir Barkat, the mayor of the Israeli-administered Jerusalem municipality, told the Associated Press news agency he has been in touch with Trump's staff about the embassy issue.
Between 2009 and 2014, settlements were expanded by at least 23 percent.
Benjamin Netanyahu, Israel's prime minister, has vowed to continue settlement expansion. In March 2015, the day before Israelis re-elected him, Netanyahu promised to prevent the establishment of a Palestinian state under his watch.
Source: Al Jazeera and news agencies