"By discarding decades of bipartisan United States policy and flagrantly disregarding worldwide law, they are trampling on the rights of Palestinians and helping the Israeli right-wing to destroy Israel's future as a democratic homeland for the Jewish people", the statement reads.
According to several United Nations Security Council resolutions, the most recent in 2016, Israeli settlements are illegal under worldwide law as they violate the Fourth Geneva Convention, which prohibits an occupying power from transferring its population to the area it occupies.
The policy shift, which appears to be an attempt to appeal to pro-Israel conservatives in the USA, is the latest in a string of pro-Israel moves by Trump.
"Calling the establishment of civilian settlements inconsistent with global law has not advanced the cause of peace", Pompeo said.
Jordan has accused the USA of entrenching the Israeli occupation of the Palestinian territories, after Washington announced it did not consider Jewish settlements in the occupied West Bank to necessarily be illegal. "We warn against unsafe consequences of USA change of position on settlements on MEPP".
Palestinians have condemned a decision by the USA to abandon its four-decades-old position that Jewish settlements in the occupied West Bank are inconsistent with worldwide law. Making it about Trump is self-exculpatory and a continuation of violence.
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Huwaida Arraf, a Palestinian American lawyer and rights activist, said the announcement was "not surprising".
The Republican Jewish Coalition called the change a "historic decision by the Trump Administration, one that recognizes the facts on the ground and the necessity of a negotiated peace between the parties to the conflict".
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Many critics of Israeli settlements argue that it's an obstacle to peace between the Israelis and Palestinians calling it an "occupation" of stolen land.
Global law views both the West Bank and East Jerusalem as occupied territories and considers all Jewish settlement-building activity there illegal.
But Mr Netanyahu said that the United States shift "rights a historical wrong" for the 600,000 Israeli settlers who live in the West Bank and east Jerusalem among around 2.9 million Palestinians.
UNRWA provides services to about five million Palestinian refugees, with the USA a significant donor since the agency's founding following the 1948 creation of Israel.
The timing of this latest move might have been created to help Netanyahu as he struggles to stay in power, with Israeli politics deadlocked after two inconclusive elections this year.
The International Criminal Court is expected to take key decisions on two cases against Israel in the coming weeks, including on Israeli settlements.
Monday's announcement marked another significant instance in which the Trump administration has sided with Israel and against stances taken by the Palestinians and Arab states even before unveiling its long-delayed Israeli-Palestinian peace plan.
The statement puts the United States at odds with virtually all countries as well as UN Security Council resolutions and was hailed by Israeli Prime Minister Benjamin Netanyahu, a close ally of President Donald Trump who is days away from potentially losing office. "The U.S. administration has lost its credibility to play any future role in the peace process", he said.
"Unchanged" will also remain the approach of the general Palestinian public. Further, we encourage both sides to find a solution that promotes and protects the security and welfare of Palestinians and Israelis alike. Palestinian analysts I have spoken with say the growth of Jewish settlements has essentially killed the potential for a viable two-state solution.
He said that the United States was not necessarily considering the settlements legal either, but instead would defer to the judgement of Israeli courts. "This is clear from worldwide law and multiple United Nations resolutions".