US president Donald Trump has temporarily waived a law requiring the US to move its embassy in Israel to Jerusalem.
Mr Trump's move to renew the waiver for six months keeps the US embassy in Tel Aviv for now. The US president has said he is reviewing whether to fulfil his campaign promise to move the facility to Jerusalem.
The American leader faced a Thursday deadline to renew the waiver or see the State Department lose half its funding for its overseas facilities.
Presidents have renewed the waiver every six months for years.
Israel considers Jerusalem its capital, but the Palestinians claim east Jerusalem for the capital of a future state.
The US said its policy on Jerusalem has not changed and that Jerusalem's status must be negotiated between Israelis and Palestinians.
Israeli prime minister Benjamin Netanyahu said the move has hurt the prospects for peace with the Palestinians.
His office said it believes all embassies should be based in what it called Israel's "eternal capital".
A statement said: "Maintaining embassies outside the capital drives peace further away by helping keep alive the Palestinian fantasy that the Jewish people and the Jewish state have no connection to Jerusalem."
It added that despite the disappointment, Israel appreciates Mr Trump's friendship and his commitment to moving the embassy to Jerusalem in the future.