"Although Trump has said his declaration does not set the final borders of the city, it is seen by both Israel and the Palestinians as taking Israel's side in the most sensitive issue in their conflict".
The source stressed the need for the worldwide community to shoulder its responsibilities towards ending the violence and protecting the Palestinian people.
Palestinian president Mahmud Abbas accused Israel of "massacres", while Amnesty International called the violence an "abhorrent violation" of human rights.
No Israelis have been killed and the military has faced criticism over the use of live fire.
At least 55 Palestinians were killed in clashes on the border with Gaza Strip, media reported, citing the Gaza Health Ministry.
Why is the embassy move so controversial?
One clear loser, veterans of Israeli-Palestinian talks said, was peace in the region, which seemed ever more distant.
The protesters burned tires and slung rocks at the Israeli forces located at a distance beyond the fence. Mikhail Bogdanov, the Russian deputy foreign minister responsible for Middle Eastern affairs, called the move "short-sighted" and said the United States was to blame for yesterday's "sharp escalation" of violence in Gaza.More news: Bale gives Real Madrid selection headache
"We are witnessing an abhorrent violation of global law and human rights in Gaza".
Around 40,000 demonstrators heeded the Hamas government's call to amass at the border fence with Israel Monday, more than twice the usual number that has shown up over the last several weeks during the Palestinians' so-called "March of Return". Palestinians want the eastern part of the city as the capital of a future independent state of their own.
"Jerusalem is a Palestinian territory, and according to global law, Jerusalem should be under worldwide law until both parties agree to divide it into (two) capitals or what", said Jamal Hamed, president of the Association of Palestinian Arab Canadians. On this important anniversary, it's fitting that the US finally open an embassy in Israel's self-determined capital.
The Israeli military said that some in the crowds were planting or hurling explosives, and that many were flying flaming kites into Israel.
Paris disapproves of the USA decision to relocate the embassy as it goes against the worldwide law, French Foreign Minister Jean-Yves Le Drian said in a statement. "A day that will be engraved in our national memory for generations", Mr Netanyahu said in a speech at the ceremony.
The prime minister also praised Trump for his "courage" in moving the embassy.
The protests are scheduled to culminate on Tuesday, the day Palestinians mourn as the "Nakba" or "Catastrophe" when, in 1948, hundreds of thousands of them were driven out of their homes or fled the fighting around Israel's creation.
The Palestinians plan to demonstrate against Monday's inauguration from Arab districts abutting the Jerusalem site.