Foreign Minister Penny Wong said the city’s status should be decided through peace talks between Israelis and Palestinians, and not through unilateral decisions.

“We will not support an approach that undermines (a two-state solution), she said, adding: “Australia’s embassy has always been, and remains, in Tel Aviv.”

A conservative government led by Scott Morrison faced a widespread domestic backlash for its 2018 decision to follow US president Donald Trump in naming West Jerusalem as the Israeli capital.

“I know this has caused conflict and distress in part of the Australian community, and today the government seeks to resolve that,” Wong said.

She accused the Morrison government of being motivated by a crucial by-election in a beach-side Sydney suburb with a sizeable Jewish community.

“You know what this was? This was a cynical play, unsuccessful, to win the seat of Wentworth and a by-election.”

The 2018 decision also caused consternation in neighbouring Indonesia – the world’s most populous Muslim-majority country – temporarily derailing a free trade deal.

Jerusalem is claimed by both Israelis and Palestinians.

Most foreign nations avoid locating embassies in the city for fear of prejudging peace talks on the city’s final status.

Israel occupied Arab east Jerusalem in the 1967 Six Day war and later annexed it, declaring the entire city its “eternal and indivisible capital.”

Palestinians claim the eastern part as the capital of a future Palestinian state.

Wong insisted that the decision did not signal any hostility to Israel.

“Australia will always be a steadfast friend of Israel. We were amongst the first countries to formally recognise Israel,” she said.

“We will not waver in our support of Israel and the Jewish community in Australia. We are equally unwavering in our support of the Palestinian people, including humanitarian support.”

Canberra’s decision is unlikely to come as surprise to the Israeli government.

The policy reversal was foreshadowed by the removal of language on the Israeli capital on the website of Australia’s Department of Foreign Affairs and Trade.

The centre-left Labour party, with Anthony Albanese as prime minister and Wong as foreign minister, came to power in May 2022.