If Australia does proceed, it will be following the U.S. which earlier this year moved its embassy, effectively recognising the holy city of Jerusalem as the "true" capital of Israel. Prime Minister Benjamin Netanyahu spoke on Monday evening to the country's new Prime Minister Scott Morrison and thanked him for his surprising announcement.
"No decision has been made regarding the recognition of a capital or the movement of an embassy. but at the same time, what we are simply doing is being open to that suggestion", Morrison said.
Australia would be "violating worldwide law" and United Nations security council resolutions if it proceeded with the embassy move, said Palestinian foreign minister Riyad al-Maliki, who was in Jakarta on an official visit Tuesday.
Labor is concerned the approach could undermine the prospect of a two-state solution between Israel and Palestine.
"The Australian prime minister updated [Netanyahu] that he is weighing whether to formally recognize Jerusalem as Israel's capital and move the Australian Embassy to Jerusalem".
When Russia in April 2017 recognized West Jerusalem as Israel's capital, stressing that East Jerusalem will be "the capital of the future Palestinian state", Israeli officials did not react with great enthusiasm, as they consider the entire city to be Israel's eternal and undivided capital.
New Zealand Kiwis stun Australian Kangaroos 26
Some streets around Mt Smart Stadium are lined with Tongan flags and houses decked out in red and white. He hopes that will gradually change, continuing during the looming three-Test series away to England.
"I think it is quite unfortunate a foreign policy issue of some substance should be debased in this way because of a domestic political consideration", one former senior diplomat told Fairfax Media.
Reacting to the news, the Palestinian ambassador to Canberra hit out at Morrison's "deeply disturbing" plan, urging Australia to "exercise caution". "We support a two-state solution and our view has been that any shift in representation, in the way we saw with the United States, does not move us closer to that peaceful resolution", she said.
At the time the Guardian reported that, Foreign Minister Julie Bishop ruled out the move stating that "Jerusalem is a final status issue" and that Australian had "maintained that position for decades".
The status of Jerusalem is one of the thorniest obstacles to a peace deal between Israel and the Palestinians. Late previous year, the US President Donald Trump ordered the US embassy to be moved to Jerusalem and the relocation was completed by April 2018.
Mr Trump opened the new U.S. embassy in the city in May.
Morrison said the government would review the Iran nuclear deal, an Obama-era pact that Trump ditched - and Netanyahu has been pressing other countries to drop it. As well as the West Bank and Gaza, Israel captured the eastern side of the city in 1967 from Jordanian forces.
'Foreign policy, and Australia's national interest are far too important to be played with in this fashion, ' Senator Wong said.