US President Donald Trump will recognise Jerusalem as Israel's capital, senior administration officials have said.
He is due to announce the controversial decision in a speech on Wednesday.
Mr Trump is also expected to approve moving the US embassy from Tel Aviv to Jerusalem, but not for several years.
Israel welcomes the changes but Arab leaders have warned against them, and Hamas, which controls Gaza, is calling for protests.
Arab leaders warned against moving the US embassy in Israel to Jerusalem, with one saying this would be "a flagrant provocation to Muslims".
Israel has always regarded Jerusalem as its capital city, while the Palestinians claim East Jerusalem as the capital of a future Palestinian state.
In recognising Jerusalem as Israel's capital, the US becomes the first country to do so since the foundation of the state in 1948.
Mr Trump would also direct the state department to begin the process of moving the US embassy to Jerusalem - but this could take several years as it still has to be designed and built and security concerns would need to be addressed.
He originally promised the move to pro-Israel voters during his campaign for the presidency.
The US officials added that the president would still sign a regular waiver blocking the embassy's move from Tel Aviv to Jerusalem until the new building was completed.
Successive presidents have signed waivers to get round the 1995 Jerusalem Embassy Act, which mandates moving the embassy. They have done this so that the US can be seen as neutral in Middle East peace negotiations.
Ahead of his formal announcement, Mr Trump phoned several regional leaders to inform them of the embassy move.