Reacting to the announcement on Twitter, Jordan Foreign Minister Ayman Safadi said the settlements were a "blatant violation of global law and UN Security Council Resolutions" and warned of "dangerous consequences".
According to a report by the Jerusalem Post, the State Department's legal office embarked on a year-long review of the Hansell Memo and met with worldwide law experts and officials from various governments.
However, US and Israeli officials said the shift had been in the works for months.
Saab Erekat, the Palestinian Authority's diplomat, likewise decried "irresponsible United States behavior", and a spokesperson for Palestinian President Mahmoud Abbas said the move "contradicts totally with global law".
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The Palestinian Authority, which has not held elections in since 2006, claims that territory in Judea and Samaria will be a part of a future independent state. "We saw this all happening through the negotiations, there was a continued attempt to water down the illegality of settlements".
The settlements are also considered a major stumbling blocks to an Israeli-Palestinian peace agreement.
Under President Donald Trump, the U.S. moved its embassy in Israel from Tel Aviv to Jerusalem, shuttered the Palestine Liberation Organization office in Washington, and slashed funding to the Palestinians. No casualties were reported in Israel.
Hamas hasn't claimed responsibility for the attacks, which Israel said came from Hamas launchers.
Monitor groups have said that since Israel has conducted a settlement push since Trump took office.
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Palestinian security sources said the Israeli strikes were aimed at two Hamas sites in the north of the territory.
The Palestinians and supporters say the settlements undermine hopes for a two-state solution by gobbling up land sought by the Palestinians.
After the war, Israel immediately annexed East Jerusalem, home to the holy city's most important religious sites, in a move that is not recognized by most countries.
"The words of the American President faithfully express the historical truth and global law which states that Judea and Samaria are part of the territory designated for the establishment of a Jewish home for the Jewish people".
But Israel has never annexed the West Bank, even as it has dotted the territory with scores of settlements and tiny settlement outposts.
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