In an opinion piece published in The Spectator magazine former prime minister Tony Abbott argued Australia could demonstrate "unswerving support for Israel" by joining any move by the incoming Trump administration to move its embassy.
But Ms Bishop was quick to reject the suggestion.
"The Australian government does not have any plans to move the Australian embassy from Tel Aviv to Jerusalem," she said in a statement to AAP.
Mr Abbott recently returned from a trip to the Middle East.
He attended the Australia-Israel-UK Dialogue in Jerusalem along with Opposition Leader Bill Shorten and other federal MPs.
Mr Abbott also called for Australia to suspend aid to the Palestinian Authority because "it keeps paying pensions to terrorists and their families".
Australia's aid program to the Palestinian government is more than $40 million a year and is provided via United Nations agencies and some charity organisations.
The money goes towards projects to provide Palestinian refugees with basic services such as health, education, water and sanitation.
Ms Bishop defended the aid program, saying it has a robust risk management and due diligence assessment process which are also applied to partner agencies and governments.
The government had a zero tolerance policy towards fraud and corruption, she said.
Last year, the Department of Foreign Affairs and Trade suspended aid to World Vision's work in the Palestinian Territories in the wake of allegations the charity's head in Gaza funnelled millions of dollars to militant group Hamas.
