The Administration argued that they undertook these measures because Palestinian leaders have been hesitant to take part in peace negotiations with Israel. For more, we turn to NPR's Daniel Estrin.
KELLY: So explain exactly what the consulate did.
The consulate had primarily served the capital's Palestinians and was the main channel of communication over the years between the USA administration and the Palestinian leadership. But we haven't heard so much about this other diplomatic outpost in Jerusalem.
'It does not signal a change of USA policy on Jerusalem, the West Bank, or the Gaza Strip. It was based in a attractive historic stone mansion with a lovely courtyard, downtown Jerusalem. As part of the merger, the position of United States consul-general, who served as the ambassador to the Palestinians, was eliminated. And the idea was to have diplomatic symmetry.
A worker hangs a road sign directing to the USA embassy, in the area of the US consulate in Jerusalem, May 7, 2018.
KELLY: So why do this move now?
Palestinians view him - along with Trump's administration - as blatantly biased in favour of Israel.
But the change means Washington's relations with the Palestinians will now fall under the authority of United States ambassador to Israel David Friedman, who has been a supporter of Israeli settlement building in the occupied West Bank.
And in the diplomatic community, former and current USA diplomats are objecting to this.
Israeli officials had not commented on the move on Monday.
KELLY: And how about reaction from Palestinian leaders?
"I gave an instruction to speed up the demolition of these homes within the parameters of the legal system", the premier said. What are they saying? The Palestinian Authority has preemptively rejected the plan, accusing the US of bias toward Israel.
The decision has angered the Palestinian leadership and added to the outrage caused in the Arab world when the U.S. Embassy was moved from Tel Aviv to Jerusalem in May past year.
Saeb Erekat, Palestine Liberation Organisation secretary-general, called the closure "the last nail in the coffin of the USA administration's role in peacemaking".
Previous year the U.S. recognized Jerusalem as Israel's capital and relocated its embassy there, upending USA policy toward one of the most explosive issues of the Israeli-Palestinian conflict. And we've seen ties between the USA and Palestinians deteriorate.
Ashrawi accused Israeli Prime Minister Benjamin Netanyahu of "continuing his criminal approach and working of turning the course of elections to his favor at the expense of the Palestinian people's lives and their rights".
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