Palestinian President Mahmoud Abbas's office said on Wednesday that Jerusalem is "not for sale" after United States (US) President Donald Trump threatened to cut annual aid of more than $300 million in an attempt to force them to come to the negotiating table.

"Jerusalem is the eternal capital of the state of Palestine and it is not for sale for gold or billions," Abbas spokesman Nabil Abu Rudeina told AFP, referring to Trump's recognition of Jerusalem as Israel's capital.

The December 6 declaration led Abbas to say the US could no longer play any role in the Middle East peace process.

"We are not against going back to negotiations, but (these should be) based on international laws and resolutions that have recognised an independent Palestinian state with east Jerusalem as its capital," Abu Rudeina said.

Trump on Tuesday tweeted: "We pay the Palestinians hundreds of millions of dollars a year and get no appreciation or respect."

"With the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"

It was not immediately clear whether Trump was threatening all of the budget, worth $319 million in 2016, according to US government figures.

The US has long provided the Palestinian Authority with much-needed budgetary support and security assistance, as well as an additional $304 million for the UN's programs in the West Bank and Gaza.

Unless Trump follows through on his customary tough talk, the message is likely to be seen as primarily political.

A senior Palestinian official hit back at Trump's funding threat, saying the Palestinians would not be "blackmailed" by Washington.

"We will not be blackmailed," senior Palestinian official Hanan Ashrawi said in a statement. "President Trump has sabotaged our search for peace, freedom and justice. Now he dares to blame the Palestinians for the consequences of his own irresponsible actions!"

US pressure on Palestine

Trump came to office boasting that he could achieve the "ultimate deal" that secures peace in the Middle East, something that has eluded presidents since the late 1960s.

For most the last half century the US has been seen as an indispensable ─ if sometimes imperfect ─ arbiter of the peace process.

Trump's actions are likely to cast that further in doubt.

He has heaped pressure on Palestinians to do a deal by threatening to close the de facto "embassy" in Washington, recognising Israel's contested claim on Jerusalem and now threatening aid.

Efforts to harness improved Arab-Israeli relations to push a peace deal have been at least temporarily derailed by his decision to recognise Jerusalem as Israel's capital, breaking with decades of American policy.

The decision sparked almost universal diplomatic condemnation and deadly protests in the Palestinian territories.

It also prompted Palestinian president Mahmoud Abbas ─ 82-years-old and facing the prospect of entering the history books as the leader who "lost Jerusalem" ─ to cancel a planned meeting with Vice President Mike Pence.

Christian and Muslim leaders in Egypt took similar steps.

New Israeli law

Pence was forced to delay his December visit to the Middle East until later this month, and aides were on Tuesday forced to reject rumours of further delays.

"As we've said all along, the vice president is going to the Middle East in January," said Pence Spokeswoman Alyssa Farah. "We're finalising details and will announce specifics of the full trip in the coming days."

In another blow to remaining hopes for a two-state solution to the Israeli-Palestinian conflict, Israel's parliament on Tuesday gave final approval to legislation aimed at making it more difficult for the government to hand the Palestinians parts of Jerusalem under any future peace agreement.

Legislators approved the measure 64 to 51.

The new law determines that any ceding of lands considered by Israel to be part of Jerusalem would necessitate a two-thirds majority vote in parliament -- 80 out of 120 members of the Knesset.

It also enables changing the municipal definition of Jerusalem, which means that sectors of the city “could be declared separate entities,” a statement from parliament read.

Israeli right-wing politicians have spoken of unilaterally breaking off overwhelmingly Palestinian areas of the city in a bid to increase its Jewish majority.

Israel occupied east Jerusalem and the West Bank in 1967. It later annexed east Jerusalem in a move never recognized by the international community.

It claims all of Jerusalem as its united capital, while the Palestinians see the eastern sector as the capital of their future state.

The issue is among the most contentious in the Israeli-Palestinian conflict.