Trump vowed during his presidential campaign that he would move the US Embassy to Jerusalem al-Quds, a step that would enrage Palestinians and create an international furor.
Washington’s Arab and European allies say such a move could unleash further violence, undermine the so-called peace process, damage US standing in the Middle East, and endanger American personnel in the region.
"It's very dangerous," a European diplomat told CNN on condition of anonymity. "Chances for the peace process are going very quickly -- it's now or never. Violence is always a concern and, at this point, it's probably easy for Palestinians to demonstrate their frustration."
Palestinian President Mahmoud Abbas has written to Trump to say the relocation of the US embassy would have a disastrous impact. He warned in a recent speech that "any statement or position that disrupts or changes the status of Jerusalem [al-Quds] is a red line which we will not accept."
In an interview with CBS last week, US Secretary of State John Kerry issued his own warning, saying if the US moves its embassy to Jerusalem al-Quds, "you'd have an explosion -- an absolute explosion in the region, not just in the West Bank and perhaps even in Israel itself, but throughout the region."
US State Department officials said they fear the move will lead to security problems for US diplomatic missions and troops throughout the Middle East, create tension in US relationships with countries across the region, and cause even more conflict between the Palestinians and Israelis.
Some US diplomats said there were signs that Trump may pull back from his campaign pledge to move the embassy. Trump’s transition team has offered no specifics on when or where the embassy would move, but Trump has said he would like it to happen soon.
Former US Presidents Bill Clinton and George W. Bush had also promised to move the US embassy during their presidential campaigns in order to court pro-Israel voters, but later reversed their positions.
Last month, outgoing US President Barack Obama renewed a presidential waiver ordering the US Embassy in Israel to remain in Tel Aviv.
Most of the world does not recognize Jerusalem al-Quds as Israel's capital and the city is considered occupied territory.
Palestinians are seeking to create an independent state on the territories of the West Bank, East al-Quds and the Gaza Strip, with East al-Quds being the capital. They are also demanding that Israel withdraw from the Palestinian lands occupied in a 1967 war.