Trump's December 6 announcement has sparked protests across the Muslim world and drawn international condemnation.
The US move is offensive to "Christians and Muslims around the world who consider Jerusalem as an incubator of their most sacred, spiritual and national heritage", Atallah Hanna, the archbishop of Jerusalem's Greek Orthodox church, said in a statement on Saturday.
"We, Palestinians, Christians and Muslims reject the US recognition of Jerusalem as the capital of Israel," he added.
"The US gave the occupation what it does not deserve."
'Message of unity'
His comments came as Christian Palestinians on Sunday took part in festivities taking place on the eve of Christmas.
Al Jazeera's Hoda Abdel-Hamid, reporting from Bethlehem, said many Muslims were also attending the annual events in a show of solidarity against Trump's decision.
"This message of unity is one Palestinians are very adamant to convey, especially while there is this political crisis taking the area by storm," she said.
Maher Canavati, a member of Bethlehem's local council, told Al Jazeera the celebrations are intended to deliver "messages of peace, love and understanding".
"We want peace with our neighbours [but] we need to be able to share Jerusalem and to have easy access to Jerusalem as Palestinians [as well]."
Bethlehem, normally brimming with tourists at this time of year, has been almost empty of visitors in recent days due to nearby confrontations between Israeli forces and Palestinian protesters in the wake of the US decision.
"Unfortunately, after the statement of Donald Trump a lot of people were not sure about the security in this area. Many of those who were in the country did not make it to Bethlehem, they stayed in Jerusalem and in the northern part of the country," said Canavati.
"But we are here are celebrating, welcoming everybody - it is very important for us that all of the Christians coming to Bethlehem supporting the Muslim and Christian community here are taken care of."
Life in Gaza a 'prison'
In the Gaza Strip, Palestinian Christians held a vigil to express their support for Jerusalem as Palestine's capital.
Al Jazeera's Malcolm Webb, reporting from the besieged territory, said anger at Trump's decision is shared among Christians and the majority-Muslim populating living in the besieged territory.
"Everyone we have spoken to here is in opposition to the US move, and they say it only adds to the frustration of life here," he said.
The Israeli blockade of the occupied Gaza Strip, in its current form, has been in place for more than 10 years.
Gaza's isolation has devastated its economy, impoverished much of the Strip's two million people, and left them without adequate electricity, water and health services. Since 2007, Israel has launched three wars against the Hamas-governed Strip.
Some 1,000 Christians live in the Gaza Strip, fewer than half the amount 10 years ago.
According to sociologist Samir Quta, many Christian families have fled Gaza in recent years in search of safety and financial security.
"Christian families in Gaza usually have a high socio-economic level, and the more people have options and money, the more they look for a better life," he told Al Jazeera.
"This is not available in Gaza. Even with money in Gaza you cannot have a good life."
Rosette Saygh, a Christian still living in Gaza, told Al Jazeera life in the territory has become like a "prison" for those who have remained behind.
"Life is very difficult in Gaza, we live under siege and we cannot move anywhere … We have witnessed many wars, during the bombing we had to sleep in the church for safety," she said.