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SYDNEY (Reuters) - Australia will reconsider its support for Iran’s nuclear deal and is open to recognizing Jerusalem as Israel’s capital and shifting its embassy there, Australia’s Prime Minister said on Tuesday.

The status of Jerusalem is one of the thorniest obstacles to a peace deal between Israel and the Palestinians.

Israel regards all of the city, including the eastern sector that it annexed after the 1967 Middle East war, as its capital while the Palestinians, with broad international backing, want East Jerusalem as the capital of a future state that they hope to establish in the occupied West Bank and the Gaza Strip.