It would fulfil a pledge Mr Trump made on the campaign trail to transfer the US' diplomatic mission from Tel Aviv where it is at present.
White House spokesman Sean Spicer said in a statement: "We are at the very beginning stages of even discussing this subject."
It comes as Israel's Security Cabinet released a statement saying the Prime Minister Benjamin Netanyahu has removed restrictions on settlement building.
Sky's Diplomatic Editor Dominic Waghorn said the move is potentially explosive.
He said: "In the 1967 war, Jerusalem was annexed in a move regarded as against international law and a UN resolution has decided Israel's position that it is the eternal capital of Israel is against international law because it has no resolved status, in negotiation.
White House spokesman Sean Spicer said in a statement: "We are at the very beginning stages of even discussing this subject."
It comes as Israel's Security Cabinet released a statement saying the Prime Minister Benjamin Netanyahu has removed restrictions on settlement building.
Sky's Diplomatic Editor Dominic Waghorn said the move is potentially explosive.
He said: "In the 1967 war, Jerusalem was annexed in a move regarded as against international law and a UN resolution has decided Israel's position that it is the eternal capital of Israel is against international law because it has no resolved status, in negotiation.
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