Australia has said it would no longer recognise West Jerusalem as Israel's capital, reversing a contentious decision by the previous conservative government.
Foreign Minister Penny Wong said the city's status should be decided through peace talks between Israelis and Palestinians, and not through unilateral decisions.
"We will not support an approach that undermines" a two-state solution, she said, adding: "Australia's embassy has always been, and remains, in Tel Aviv".
Israeli Prime Minister Yair Lapid sharply criticised Australia's decision.
Mr Lapid described the move as a "hasty response", adding: "We can only hope that the Australian government manages other matters more seriously and professionally.
"Jerusalem is the eternal and united capital of Israel and nothing will ever change that."
However, the Palestinians hailed the move by the Australian government.
"We welcome Australia's decision with regards to Jerusalem and its call for a two-state solution in accordance with international legitimacy," said Hussein al-Sheikh, the Palestinian Authority's civil affairs minister.
Hamas, the Islamist group that controls Gaza, called it "a step in the right direction."
In 2018, a conservative government led by Scott Morrison followed former US president Donald Trump's lead in naming West Jerusalem as the Israeli capital.
The move caused a domestic backlash in Australia and caused friction with neighbouring Indonesia, the world's most populous Muslim-majority nation, temporarily derailing a free trade deal.
Jerusalem is claimed by both Israelis and Palestinians, and most foreign governments avoid formally declaring it the capital of any state.
"I know this has caused conflict and distress in part of the Australian community, and today the government seeks to resolve that," Ms Wong said.
She accused the Morrison government of being motivated by a by-election in a beach-side Sydney suburb with a sizable Jewish community.
"You know what this was? This was a cynical play, unsuccessful, to win the seat of Wentworth and a by-election," she said.
The centre-left Labor party, with Anthony Albanese as prime minister and Ms Wong as foreign minister, came to power in May 2022.
Ms Wong insisted that the decision did not signal any hostility to Israel.
"Australia will always be a steadfast friend of Israel. We were amongst the first countries to formally recognise Israel," she said.
"We will not waver in our support of Israel and the Jewish community in Australia. We are equally unwavering in our support of the Palestinian people, including humanitarian support."
Political director of the Israeli foreign ministry Aliza Bin Noun summoned Australia's ambassador Paul Griffiths to express her country's "deep disappointment" and to protest the "surprising decision".
Ms Bin Noun told Mr Griffiths that the move would encourage extremism and jeopardise regional stability, a foreign ministry statement said.
Indonesia welcomed the decision with its foreign ministry saying: "This policy would hopefully contribute positively to Palestinian-Israeli peace negotiations".
Israel occupied Arab east Jerusalem in the 1967 Six Day War and later annexed it, declaring the entire city its "eternal and indivisible capital".
Palestinians claim the eastern part as the capital of a future Palestinian state.
