"It will advance the process because of the correction of the historic injustice and the smashing of the Palestinian fantasy of Jerusalem not being the capital of Israel", it said.
The comment was in response to an Israeli request for Prime Minister Netanyahu to join President Trump when he visits the Western Wall.
It was the latest sign of the Israeli right's growing disenchantment with Trump after having rejoiced in his election.
But Trump has since backed away from the embassy move, saying it was still being looked at, while Israeli Prime Minister Benjamin Netanyahu has faced political backlash at home over the issue.
Israeli Prime Minister Benjamin Netanyahu has challenged U.S. concerns over moving the American embassy to Jerusalem and said a move will help the peace process progress.
However, the worldwide community does not recognize Israel's annexation of east Jerusalem, which the Palestinians seek as the capital of a future independent state.
Moving the embassy to Jerusalem would not only keep an unequivocal campaign promise but would also be in line with USA law, which three successive administrations have chosen not to observe over the past 18 years, by passing six-monthly national security waivers.
Palestinian and other Arab leaders have warned the Trump administration that moving the U.S. embassy to Jerusalem would risk stirring popular anger and possible unrest, as the Palestinians view the city's eastern half as their capital and because of the city's significance to Muslims.
A diplomatic spat on Monday erupted between USA and Israeli officials, just days before a planned visit by President Donald Trump, after an American representative questioned Israel's claim to one of the holiest sites in Judaism.
The Palestinian Authority is based in the West Bank, which has been under Israeli occupation since 1967.More news: Iowa State Bank Increases Stake in salesforce.com, inc. (CRM)
The Conference of Presidents of Major American Jewish Organizations has welcomed a clarification from President Donald Trump's administration that it.
U.S. Ambassador to Israel David Friedman, center, visits the Western Wall, the holiest site where Jews can pray in Jerusalem's Old City, Monday.
An Israeli official told Channel 2 that the Trump team member's comment "was received with astonishment".
He reportedly then sniped at his Israeli counterparts that the Western Wall is "not your territory".
The United States' official position has been to leave the status of Jerusalem to final-stage talks between the two sides, and only move the embassy after an agreement is reached.
When Tillerson was nominated for secretary of state, Conservative Review was one of the few news outlets to report on his ties to despotic Arab nations, some of which do not even recognize Israel's existence.
He also later met with Netanyahu.
Israel is our ally, the Palestinians are not.
The Prime Minister's Office also released a summary of a meeting between Israeli Ambassador to the US Ron Dermer and National Security Advisor-designate Michael Flynn on 16 January.