The United States has effectively backed Israel's right to build Jewish settlements on the occupied West Bank by abandoning its four-decade position that they were "inconsistent with international law".
The announcement by US Secretary of State Mike Pompeo is a victory for Israeli Prime Minister Benjamin Netanyahu, who is struggling to remain in power after two inconclusive elections this year, and a defeat for the Palestinians.
Mr Pompeo said US statements about the settlements on the West Bank, which Israel captured during a 1967 war, had been inconsistent.
He said Democrat President Jimmy Carter in 1978 found they were not consistent with international law and Republican President Ronald Reagan in 1981 said he did not view them as inherently illegal.
"The establishment of Israeli civilian settlements is not, per se, inconsistent with international law," Mr Pompeo told reporters at the State Department, drawing criticism from a senior Palestinian figure even before his announcement.
"Another blow to international law, justice & peace," Hanan Ashrawi, a veteran Palestinian negotiator and member of the Palestine Liberation Organisation's Executive Committee, said on Twitter ahead of Mr Pompeo's statement.
The announcement marks the third major instance in which the Trump administration has sided with Israel and against stances taken by the Palestinians and Arab states even before announcing its long-delayed Israeli-Palestinian peace plan.
In 2017, US President Donald Trump recognised Jerusalem as the capital of Israel and, in 2018, the United States formally opened an embassy in the city.
US policy had previously been that the status of Jerusalem was to be decided by the parties to the conflict.
In March, Mr Trump recognised Israel's 1981 annexation of the Golan Heights in a boost for Mr Netanyahu that prompted a sharp response from Syria, which once held the strategic land.
President Trump's move might have been designed to help Mr Netanyahu as he struggles to stay in power.
Israeli politics is deadlocked after two inconclusive elections this year.
Former military chief Benny Gantz's centrist Blue and White party emerged neck and neck with Mr Netanyahu following a September vote. Both leaders have struggled to put together a ruling coalition.