The US has shifted its position on Israeli settlements in the occupied West Bank, no longer viewing them as inconsistent with international law.
US Secretary of State Mike Pompeo said the status of the West Bank was for Israelis and Palestinians to negotiate.
Israel immediately welcomed the move – a reversal of the US position under Mr Trump’s predecessor Barack Obama.
Settlements are communities established by Israel on land occupied in the 1967 Middle East war.
They have long been a source of dispute between Israel and the international community.
President Donald Trump’s administration has displayed a much more tolerant attitude towards settlement activity than his predecessor, Barack Obama.
Israel’s Public Security and Strategic Affairs Minister, Gilad Erdan, tweeted: “I applaud the courageous decision of the American administration.”