Trump made the controversial announcement on Wednesday, saying that the US would move its embassy in Israel from Tel Aviv to Jerusalem, drawing condemnation from world leaders and sending shock waves through the Muslim world.
Both Israelis and Palestinians claim the holy city as their capital.
Hamas leader Ismail Haniyeh said in Gaza on Thursday that Israel's policies supported by the United States "could only be confronted by a renewed intifada against the occupation."
"This atrocity sparks a new intifada," he said, adding that the announcement had left the peace process "buried forever."
"Palestine will not be divided and the whole of Palestine and the whole of Jerusalem are the property of the Palestinian people," he said, calling the US-Israeli alliance "satanic."
"It is a declaration of war against our Palestinian people in their holiest of holy places of the Christians and Muslims," he added.
Leaders of the Iran-backed Palestinian Islamic Jihad group, Nafeth Azzam and Ahmed al-Batsh, said they were also ready for a new armed struggle. They called on the governing Palestinian Authority to stop all security coordination with Israel, to withdraw its recognition of Israel and to declare an end to the Oslo agreements, which are the basis of peace negotiations.
Trump's announcement bucked decades of US foreign policy and raised fears that the peace process, already stalled, could now be finished.
Trump had promised to make the policy change during the election campaign period, saying on Wednesday the US was acknowledging "the obvious."
"This is nothing more or less than a recognition of reality. It is also the right thing to do," he said.
Muslim world reacts
Clashes broke out in Bethlehem, in the West Bank, where Israeli officers fired what appeared to be rubber bullets, water cannon and tear gas at protesters. Protesters also gathered in the West bank city of Ramallah, setting tires alight and throwing rocks at armed Israeli officers, who fired tear gas at the crowd.
Israeli Prime Minister Benjamin Netanyahu addressed a conference of foreign diplomats in Jerusalem on Thursday, saying that other countries had begun pledging to also recognize the city as Israel's capital.
"Welcome to Jerusalem, the capital of Israel, if you weren't aware of it. We have been aware of this for 3,000 years," he said at the event.
Key US' allies, including the UK and Australia, made clear they did not plan to follow Trump's lead on the issue.
Leaders of Muslim-majority nations were quick to lambast Trump's remarks.
The announcement was like "pulling the pin of a grenade," Turkey's Prime Minister Binali Yildrim said, according to the country's state broadcaster TRT Haber.
"It is a powerful blow to the Israeli-Palestinian peace process. This decision opened Pandora's box in the region," Yildirim added in a written statement.
The Pakistani foreign ministry expressed its "strong opposition and condemnation" of the announcement, in a statement on Wednesday.
"Pakistan shares the international outrage and is deeply concerned over the implications of this decision for international peace and security, especially in the Middle East. Pakistan calls upon the UN Security Council to take cognizance of this situation and take steps in accordance with the UN Charter," the statement said.
The Iraqi foreign ministry summoned the US ambassador in order to present him with a memorandum "protesting the US president's decision regarding Jerusalem."
Jordanian Foreign Minister Ayman Safadi said the announcement marked a "dangerous decision" that would benefit radicals in the region.
And Malaysia's foreign ministry called it a "miscarriage of justice."
The statement went onto say: "Recognition of Jerusalem as the capital of Israel, ignores the reality on the ground, endorses Israel repressive policies, violates Palestinian human rights and contravenes international law. It is a miscarriage of justice."