SYDNEY — Australia has decided to formally recognize west Jerusalem as Israel's capital, reversing decades of Middle East policy, Prime Minister Scott Morrison announced Saturday.

But the Australian Embassy won't be moved there from Tel Aviv until there's a peace settlement between Israel and Palestinians, he said in a speech.

While the embassy move is delayed, Morrison said his government will establish a defense and trade office in Jerusalem and will also start looking for an appropriate site for the embassy.

"The Australian government has decided that Australia now recognizes west Jerusalem, as the seat of the Knesset and many of the institutions of government, is the capital of Israel," Morrison said.

He said the decision respects both a commitment to a two-state solution and longstanding respect for relevant U.N. Security Council resolutions.

Morrison had earlier floated the idea that Australia may follow the contentious U.S. move of relocating its embassy to Jerusalem from Tel Aviv, but it was seen by many Australians as a political stunt. Critics called it a cynical attempt to win votes in a by-election in October for a Sydney seat with a high Jewish population — a poll his party subsequently lost.

The consideration had sparked backlash from Muslim-majority Indonesia and Malaysia, threatening a free trade deal which has now been delayed.

Opposition leader Bill Shorten said Saturday that the decision to recognize west Jerusalem as Israel's capital but not move the embassy there was a "humiliating backdown" from the October by-election campaign.

"What I'm worried is that Mr. Morrison put his political interest ahead of our national interest," Shorten told reporters.

Australia becomes the third country to recognize Jerusalem as Israel's capital, following the U.S. and Guatemala.

Unlike its predecessors, however, Australia recognized only the western part of the city. The move, therefore, is unlikely to please either side entirely.

Israel captured east Jerusalem in the 1967 Mideast war and annexed it in a move that is not internationally recognized. Israel considers east Jerusalem an indivisible part of its capital, while the Palestinians seek the area, home to the city's most sensitive holy sites, as the capital of a future state.

In a letter to Morrison, PLO Executive Committee Member Dr. Hanan Ashrawi urged him to reconsider the move. Ashrawi told reporters that “the only way to resolve the issue of Jerusalem would be to recognize the State of Palestine with East Jerusalem as its capital in line with international law.”

Izzat Salah Abdulhadi, head of the Palestinian Delegation to Australia, said endorsing two capitals signaled a genuine commitment to a two-state solution but said Israel would still regard Jerusalem as its "eternal and undivided capital".

"Recognition of any part of it before serious compromises and genuine concessions have been made will be seen, at least to some extent, as rewarding this intransigence," he said in a statement emailed to Reuters.