US move indicates recognition of Israeli control over east Jerusalem and West Bank
The move, which was immediately denounced by the Palestinians, is a victory for US Ambassador David Friedman. He had long sought to end the Jerusalem consulate's independent status but had faced resistance from within the State Department.
Friedman's push picked up steam in May after the Trump administration moved the embassy from Tel Aviv to Jerusalem over the objections of the Palestinians, who claim the eastern part of the city as the capital of an eventual state.
The consulate had for years served as a de facto embassy to the Palestinians but will now be known as the Palestinian Affairs Unit of the embassy. It will remain in its current location, at least for now.
The step, which was announced by Secretary of State Mike Pompeo, means that the Jerusalem consulate will no longer have a separate channel to Washington to report on Palestinian affairs. The consulate had for years served as a de facto embassy to the Palestinians.
In a statement, Pompeo said the merger of the consulate into the embassy is intended to "achieve significant efficiencies and increase our effectiveness" and denied that it signalled any change in US policy toward Jerusalem or the Palestinian territories.
"The United States continues to take no position on final status issues, including boundaries or borders," he said. "The specific boundaries of Israeli sovereignty in Jerusalem are subject to final status negotiations between the parties."
Although Pompeo sought to portray the move as a bureaucratic management shift, the downgrading of the consulate has potent symbolic resonance, suggesting American recognition of Israeli control over east Jerusalem and the West Bank.
The Palestinians, who cut off nearly all contacts with the Trump administration after it recognized Jerusalem as Israel's capital, quickly denounced the downgrading of the consulate.
Nabil Shaath, the international affairs adviser to Palestinian President Mahmoud Abbas, said it was a "very bad decision" that violated past agreements and continued Trump's decision to recognize Jerusalem as Israel's capital.
"Now, he is cutting the last connection he is said to have with the Palestinian people. He is practically saying Jerusalem is for Israel," Shaath said. "This decision has nothing to do with peace. It complicates peace and makes it impossible."
It is just the latest in a series of decisions by President Donald Trump that the Palestinians say shows bias against them.
The administration late last year recognised Jerusalem as Israel's capital, ending a decades-long US position that the status of the city should be determined in negotiations.
In January it slashed, and then ultimately, ended funding for the UN agency for Palestinian refugees as it also did with the vast majority of bilateral assistance to the Palestinians. Last month, the administration ordered the closure of the Palestinian diplomatic mission in Washington, citing US law that mandates its closure unless credible peace talks with Israel are underway.
(With inputs from agencies.)