Mike Pence has been heckled by Israeli Arab politicians as he announced the US embassy in Israel will move to Jerusalem by the end of 2019.
The US vice president kicked off his visit to Israel earlier by meeting Prime Minister Benjamin Netanyahu – and saying it was an honour "to be in Israel's capital, Jerusalem".
His visit to the region has been overshadowed by Donald Trump's controversial recognition of Jerusalem as the Israeli capital.
The move has angered Palestinians, who claim the eastern part of the city, and Arab states in the region. Palestinian President Mahmoud Abbas has refused a meeting with Mr Pence.
In a speech to the Israeli parliament, Mr Pence said: "In the weeks ahead, our administration will advance its plan to open the United States Embassy in Jerusalem and that United States Embassy will open before the end of next year."
That time frame is ahead of schedule.
"Jerusalem is Israel's capital and, as such, President Trump has directed the State Department to immediately begin preparations to move the United States Embassy from Tel Aviv to Jerusalem," he told the Knesset.
Israeli Arab politicians protested when Mr Pence took the podium, heckling him and holding up signs in Arabic and English reading "Jerusalem is the capital of Palestine" before they were removed from the building.
Pence responded to the disruption by smiling and saying: "It is deeply humbling for me to stand before this vibrant democracy."
Responding to Mr Pence's speech, Nabil Abu Rdainah, a spokesman for Mr Abbas, said: "If the United States wanted to a play a role of a mediator in the peace process it must be a fair mediator and it must abide by (international) resolutions."
Mr Abbas, in an expression of his snub, flew to Brussels to ask European Union ministers to recognise the state of Palestine "as a way to respond" to Mr Trump's announcement.
The European Union assured Mr Abbas it supported his ambition to have East Jerusalem as the capital of a Palestinian state.
"I want to reassure President Abbas of the firm commitment of the European Union to the two-state solution with Jerusalem as the shared capital of the two states," said Federica Mogherini, high representative of the EU for Foreign Affairs and Security Policy.
Israel has praised the decision taken by Mr Trump on 6 December, but Palestinians said the moved meant America can no longer serve as mediator in Middle East peace talks.
The Palestinians are planning a general strike on Tuesday to protest Mr Trump's declaration.
Mr Pence urged the Palestinians to return to the negotiating table, saying: "Peace can only come through dialogue."
Violent protests since Mr Trump's announcement has left at least 17 Palestinians dead, mostly in clashes with Israeli forces. One Israeli has been killed in that time.
Mr Pence's visit is the final leg of a trip that has included talks in Egypt and Jordan.
In Amman on Sunday, Jordan's King Abdullah II, one of America's key allies, said: "Jerusalem is key to Muslims and Christians as it is to Jews… It is key to peace in the region. And key to enabling Muslims to effectively fight some of the root causes of radicalisation."
Mr Pence, a devout Christian, will visit Jerusalem's Western Wall on Tuesday, one of the holiest sites in Judaism.
Jerusalem is home to sites which are holy to Muslims, Jews and Christians.
Israel insists it has been the capital of the Jewish people for 3,000 years and the country's capital for 70 years.
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However, Palestinians want East Jerusalem to be the capital of their future state, which Israel captured and annexed in 1967.
Mr Trump's decision has been interpreted by his critics as America taking Israel's side in the conflict.