West Jerusalem is Israeli capital: Australia

Australian Prime Minister Scott Morrison has confirmed that his government will recognise West Jerusalem as the capital of Israel.

However, he said Australia's embassy would not move from Tel Aviv, until a peace settlement was achieved.

He added Australia also recognised the aspirations of the Palestinians to a state with a capital in East Jerusalem.

The status of Jerusalem is one of the most contested issues between Israel and the Palestinians, BBC reports. 

US President Donald Trump drew international criticism last year when he reversed decades of American foreign policy by recognising the ancient city as Israel's capital. The US embassy was relocated from Tel Aviv to Jerusalem in May.

Mr Morrison's announcement comes after a period of consultation with politicians in Australia and allies abroad.

"Australia now recognises West Jerusalem, being the seat of the Knesset and many of the institutions of government, is the capital of Israel," said Mr Morrison, speaking in Sydney on Saturday.

"We look forward to moving our embassy to West Jerusalem when practical ... and after final status determination."

When the policy review was announced in October, it drew support from Israel, but criticism from the Palestinian side.

Mr Morrison's predecessor, Malcolm Turnbull, had ruled out following the US in moving Australia's embassy to Jerusalem.

Two other countries - Guatemala and Paraguay - have announced they would also make the switch, but Paraguay later reversed the decision after a change of government.