Instead, Ambassador to Israel David Friedman will oversee USA diplomatic ties with the Palestinians. He had long sought to end the Jerusalem consulate's independent status but had faced resistance from within the State Department.
The Palestinians accuse the Trump administration of siding with Israel and since the Jerusalem announcement have refused to meet with Jared Kushner and Jason Greenblatt, the White House's point men on Israeli-Palestinian issues.
The United States will merge its consulate general, which serves Palestinians, with its new embassy in Israel into a single diplomatic mission in Jerusalem, Secretary of State Mike Pompeo said on Thursday, drawing a quick rebuke from Palestinians.
This decision "does not signal a change of USA policy on Jerusalem, the West Bank, or the Gaza Strip", the statement added. "The Trump administration is part of the problem, not part of the solution", the high-ranking Palestinian official said.
After the controversial USA embassy move to Jerusalem is completed in May 2019, the former consulate in Jerusalem, which had been tasked with relations with Palestinians, will operate as the Palestinian Affairs Unit within the embassy.
"Other countries have gone to great lengths to avoid having the same representatives to Israel and the Palestinian Authority", he told AFP, pointing out even small countries separate their Palestinian and Israeli operations.
Israel's crackdown in Gaza left over 60 protesters dead in Gaza on that day alone.
"We will continue to conduct a full range of reporting, outreach, and programming in the West Bank and Gaza as well as with Palestinians in Jerusalem through a new Palestinian Affairs Unit inside U.S. Embassy Jerusalem", the Secretary insisted. "He is practically saying Jerusalem is for Israel", Shaath said. "We look forward to continued partnership and dialogue with the Palestinian people and, we hope in the future, with the Palestinian leadership". "This decision has nothing to do with peace".
In December 2017, United Nations member states voted decisively at the General Assembly in favour of a resolution effectively declaring USA recognition of Jerusalem as Israel's capital to be "null and void" and demanding it be cancelled.
In remarks to The New York Times, Daniel C. Kurtzer, an ex-envoy to Israel under Republican and Democratic administrations, said the Trump administration's decision regarding its mission for Palestinians in the occupied territories would certainly be counterproductive.
Last month, the administration ordered the closure of the Palestinian diplomatic mission in Washington, citing USA law that mandates its closure unless credible peace talks with Israel are underway.
A State Department official in Jerusalem, speaking on the condition of anonymity to brief the press, said, however, that the current consul general, Karen Sasahara, would return to Washington. The closest comparable case to the Jerusalem situation is the U.S. Consulate in Hong Kong, which also has its own chief of mission who does not report to the U.S. ambassador in Beijing.