 On Saturday, Australian Prime Minister Scott Morrison announced the national government's decision to recognise West Jerusalem as Israeli capital, while reaffirming the nation's goal for two-state solution for Israel-Palestine conflict regarding authority of Jerusalem.
"The Australian government has decided that Australia now recognises West Jerusalem, as the seat of the Knesset and many of the institutions of government, is the capital of Israel", Morrison said in a speech.  Currently, the Australian embassy in Israel is situated in Tel Aviv.
Israel claims the entire city of Jerusalem to be its capital; while Palestine claims part, East Jerusalem, as its own territory and the capital of the proposed future state. Israel came to control East Jerusalem as part of the 1967 Arab-Israeli War.  Jerusalem is considered a holy city by three major Abrahamic religions: Judaism, Christianity and Islam.
Spokesperson of the Israeli Embassy in Australia Eman Amasha issued a statement on Sunday saying "Israel views the decision of Australian Government to open its Trade and Defence Office in Jerusalem as a step in the right direction."
Despite recognising West Jerusalem as Israeli capital, Morrison said the Australian Embassy would not be relocated to West Jerusalem until the Palestinian-Israeli conflict was resolved by a two-state solution. "We look forward to moving our embassy to West Jerusalem, when practical, in support of and after a final status determination [...] We've decided to start the work there now, to identify a suitable site for an Australian embassy in West Jerusalem", Morrison added.  Morrison also said, "A two-state solution remains the only viable way to resolve the Israeli-Palestinian dispute". Saeb Erekat, a senior Palestinian official, said, "The policies of this Australian administration have done nothing to advance the two-state solution".
Senator Penny Wong of the opposition Labor Party in Australia said "Recognising West Jerusalem as Israel's capital, while continuing to locate Australia's embassy in Tel Aviv, is nothing more than a face-saving exercise that shows Mr Morrison continues to put self-interest ahead of the national interest.  This is a decision which is all risk and no gain. It is a reckless move by a desperate and divided government that satisfies no one."  Another opposition leader Bill Shorten said he was worried the Prime Minister "put his political interest ahead of our national interest".
Malaysia and Indonesia, two Muslim-majority neighbouring nations of Australia, responded to the decision.
The Foreign Ministry of Malaysia released a statement which read: "Malaysia strongly opposes the decision by the government of Australia to recognise West Jerusalem as the capital of Israel".  It went on to say: "Malaysia firmly believes that this announcement, made before the settlement of a two-state solution, is premature and a humiliation to the Palestinians and their struggle for the right to self-determination."
Malaysia, which has been Australia's free trade partner for almost six years now, emphasised on a two-state solution and concluded by saying "Malaysia will continue to work closely with all partners to find a just, comprehensive and lasting solution to the conflict."
Speaking about Australian government's announcement, Malaysian Prime Minister Mahathir Mohamad said, "Jerusalem has always been under Palestine, so why are they [Australia] taking the initiative to divide Jerusalem [as it is] not belonging to them, but to divide the Arabs and the Jews? They have no rights".
The Indonesian Foreign Ministry's statement said: "Indonesia calls on Australia and all member states of the UN [‍United Nations‍] to promptly recognise the State of Palestine and to co-operate towards the attainment of sustainable peace, and agreement between the state of Palestine and Israel based on the principle of two-state solution."
Saeed Abu Ali, the Arab League's Assistant Secretary General for Palestine and the Occupied Arab Territories, called Morrison's decision "blatantly biased toward the positions and policies of the Israeli occupation."  Previously, in September, Saeed Abu Ali praised Paraguay's decision to move its embassy back from Jerusalem to Tel Aviv as on the "right track".
Last year, the United States, and Guatemala declared recognition of Jerusalem in its entirety as Israel's capital.  Paraguay followed the decision of the US and Guatemala, moving its embassy to Jerusalem, but, then-new President Mario Abdo Benítez reversed the decision.  Paraguayan Foreign Minister Luis Luis Castiglioni said, "Paraguay wants to contribute to an intensification of regional diplomatic efforts to achieve a broad, fair and lasting peace in the Middle East".  Following Benítez's decision, Israel announced closing its embassy in Paraguay and recalling its ambassador from Paraguay.

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Australia now recognises West Jerusalem as Israeli capital, Prime Minister Scott Morrison announces