https://t.co/JrFcY0AkdyPrime Minister Scott Morrison announced the foreign policy shift during a speech in Sydney, arguing it was a "balanced" and "measured" position.
"Australia now recognises West Jerusalem, being the seat of the Knesset and many of the institutions of government, is the capital of Israel," Mr Morrison said.
"Furthermore, recognising our commitment to a two-state solution, the Australian Government has also resolved to acknowledge the aspirations of the Palestinian people for a future state with its capital in East Jerusalem."
Mr Morrison delayed moving Australia's embassy from Tel Aviv but said a trade and defence office would be established in West Jerusalem.
"We look forward moving to our embassy to West Jerusalem when practical, in support of and after, final status determination."
He said his decision to weigh into the issue had been mocked but that Australians had earned the right to have its say on the issue.
"When you look at our incredible influence, both in the creation of the state of Israel and our partnership with it over so many years, it's hard to say that Australia's influence has been small. It's been quite great," Mr Morrison said.
"So, while Australia's voice and the megaphone we have is not as great as the great powers — that's true.
"But I've got to say, ever since I raised this issue several months ago, people have been pretty keen to know what we were going to say."
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