The Palestinian Islamist movement Hamas which controls Gaza called for a new 'intifada' if Washington recognises Jerusalem as the capital of Israel or moves its embassy to the disputed city.
Reports in Washington have suggested US President Donald Trump may on Monday fulfil a campaign pledge on the American embassy, which like all other foreign missions is currently located in the coastal city of Tel Aviv.
"We warn against such a move and call on the Palestinian people to revive the intifada if these unjust decisions on Jerusalem are adopted," Hamas said in a statement.
Any decision to move its embassy there would be "a flagrant attack on the city by the American administration" and give Israel "a cover for continuing its crime of Judaising the city and emptying it of Palestinians," it said.
The status of Jerusalem is a key issue in the Israeli-Palestinian conflict.
Both Israelis and Palestinians claim the city as their capital and previous peace plans have stumbled over debates on whether, and how, to divide sovereignty or oversee holy sites.
The last Palestinian intifada, or uprising, which claimed the lives of some 3,000 Palestinians and 1,000 Israelis, was sparked by right-wing opposition leader Ariel Sharon's visit to the city's flashpoint Al-Aqsa mosque compound in 2000.
The Palestinian president's office told AFP on Friday that American recognition of Jerusalem as the capital of Israel would "destroy the peace process".
Since 1995 it has been US law that Washington's embassy in Israel must be moved from Tel Aviv to Jerusalem, as demanded by the Jewish state.
But every six months since the law was passed a succession of US presidents have signed a waiver to hold off on a switch which would enrage Palestinians and their Arab supporters.
Trump has signed the waiver once, and grudgingly, after vowing to Jewish-American supporters that he would be the president to finally make the switch permanent.
The next deadline comes on Monday, and some in Washington suggest that Trump is planning a speech on the issue next week, before his deputy Mike Pence heads to Jerusalem.
The White House has described reports he may refuse to sign the waiver as premature -- but sources told AFP they expect Trump to formally declare Jerusalem Israel's capital.
The international community has never recognised Jerusalem as the capital of Israel or its unilateral annexation of a band of territory around the city's eastern sector, which it captured in the 1967 Six-Day war.