SYDNEY -- Australia now formally recognizes west Jerusalem as Israel's capital. But it won't move its embassy until there's a peace settlement between Israel and the Palestinians, Prime Minister Scott Morrison announced Saturday.

Morrison said Australia would recognize east Jerusalem as Palestine's capital only after a settlement has been reached on a two-state solution. The Australian Embassy won't be moved from Tel Aviv until such a time, he said.

While the embassy move is delayed, Morrison said his government would establish a defense and trade office in Jerusalem and would also start looking for an appropriate site for the embassy. He said the decision respects both a commitment to a two-state solution and long-standing respect for relevant U.N. Security Council resolutions.

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"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.

Australia becomes the third country to recognize Jerusalem as Israel's capital following the U.S. and Guatemala. Unlike its predecessors, though, Australia recognized only the western part of the city. The move is therefore unlikely to please either side entirely.

A general view of the city of Jerusalem shows the Dome of the Rock mosque (C) on December 4, 2017. Thomas Coex / AFP/Getty Images

Refusing to include east Jerusalem, home to the city's most important religious sites, is likely to upset Israeli nationalists who dominate Prime Minister Benjamin Netanyahu's coalition.

For the Palestinians, it offers a partial resolution to an issue they believe should be resolved through negotiations.

Senior Palestinian official Saeb Erekat slammed Australia's "irresponsible policies" that led to the recognition.

"The policies of this Australian administration have done nothing to advance the two-state solution," Erekat said in a statement, stressing the Palestinian view that the holy city remains a final-status issue in Israeli-Palestinian peace talks, which have run aground.

There was no immediate comment from Israel's government on Saturday, the Jewish Sabbath.

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.

Israel has built a dozen settlements in east Jerusalem since 1967, BBC News reports. They considered illegal under international law.

Morrison said his country should use its "incredible influence" with Israel in an effort to bring to an end a "rancid stalemate" in the region, the BBC reported.