US Department of State has said that an American embassy in Jerusalem will open in May.
The opening of the mission will coincide with Israel's 70th anniversary, the statement said.
The announcement brings forward the controversial plan, announced by President Trump in December, by at least a year.
A senior Palestinian official, Saeb Erekat, called the move a "blatant provocation".
The anniversary of Israel's founding is mourned by Palestinians as the Nakba, or "catastrophe".
On Friday, Israeli Prime Minister Benjamin Netanyahu hailed the embassy announcement as "a great day for the people of Israel".
Donald Trump's decision last year that the US would recognise Jerusalem as Israel's capital infuriated Palestinians.
The US Department of State spokeswoman said the embassy would initially be located at existing consular facilities in the Arnona district of the city.