US President Donald Trump is expected to recognise Jerusalem as Israel’s capital.
Senior US administration officials said Trump is due to announce the controversial decision in a speech later.
Mr Trump is also expected to approve moving the US Embassy from Tel Aviv to Jerusalem, but not for several years.
Israel welcomes the changes but the Palestinians and Arab leaders have warned they will jeopardise any Middle East peace process.
Israel has always regarded Jerusalem as its capital city, while the Palestinians claim East Jerusalem as the capital of a future Palestinian state.
Ahead of his formal announcement, Mr Trump phoned several regional leaders to inform them of the Embassy move.
Israel’s intelligence minister, Israel Katz, told army radio that Israel was “preparing for every option”, including an outbreak of violence.
France, the European Union and the Arab League have also expressed concern.
Mr Trump’s move upends 70 years of US policy. Both Democratic and Republican presidents have always said that the status of the city be determined through peace negotiations.
The US president was expected to formally announce his decision in a speech at the White House today at 8pm UK time.
One senior US official said, “US policy is going to be honest about a reality that Jerusalem is the capital of Israel. It has been the capital of the Israeli people since ancient times. It’s undeniable, it’s just a fact.”
He pointed out that Israeli ministries, the Supreme Court, and the prime minister were in Jerusalem.