Standing alongside Israeli Prime Minister Benjamin Netanyahu in the White House's East Room, Trump said his plan could succeed where decades of previous US attempts to intervene had failed.
"Together we can bring about a... new dawn in the Middle East," Trump said to an enthusiastic audience that included throngs of Israeli and Jewish American guests — but apparently no Palestinian representatives.
They are flat out rejecting the plan, which grants Israel much of what it has sought in decades of international diplomacy, namely control over Jerusalem as its "undivided" capital, rather than a city to share with the Palestinians. The plan also lets Israel annex West Bank settlements.
Trump praised Israel for taking "a giant step toward peace" with the plan, which lays out a vision for future Palestinian statehood if a series of strict conditions are met.
These include requiring the future Palestinian state to be "demilitarised," while formalising Israeli sovereignty over settlements built in occupied territory.
The US president, who was followed at the podium by Netanyahu, painted a future where some $50 billion in investments would eradicate the misery gripping Palestinians today, while allowing Israel never "to compromise its security."
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Criticising previous US diplomatic efforts as overly vague, Trump noted that his version was 80 pages long and contained a map depicting the proposed future neighboring states.
However, the Palestinians angrily rejected the entire plan.
"This conspiracy deal will not pass. Our people will take it to the dustbin of history," Palestinian president Mahmud Abbas said.
Trump promised a "contiguous" future Palestinian state, addressing the current situation where Israel controls broad territory separating the two main population centers of the Gaza Strip and the West Bank.
But the map showed the West Bank remaining riddled with Jewish settlements linked to Israel and only a long road tunnel connecting the area with the seaside Gaza Strip.
The plan makes clear that Israel is free to annex its settlements on Palestinian lands right away.
On the flashpoint issue of Jerusalem, Trump said Israel should retain control over the city as its "undivided capital," Trump said. At the same time, the Palestinians would be allowed to declare a capital within occupied East Jerusalem, he said.
The Hamas movement, which runs the Gaza Strip, said it could never accept compromise on Jerusalem being capital of a future state.
The announcement came as both Trump and Netanyahu fight for their political futures.
Trump is in the midst of an impeachment battle over his alleged abuse of power and he faces a difficult reelection in November. Pro-Israel evangelical Christians form a key part of his voter base and they have backed his frequent moves to bolster Israel's position in the Middle East.
Netanyahu was formally indicted on three corruption charges on Tuesday after he abandoned an attempt to seek parliamentary immunity.
His right-wing Likud faces a neck-and-neck race with rival Benny Gantz's centrist Blue and White party in a month. But he is expected to benefit from the high-profile partnership with Trump.
Both men were interrupted by frequent applause and standing ovations during their speeches.
Netanyahu called the proposal "the deal of the century" and said to Trump "you have been the greatest friend that Israel has ever had in the White House."
Trump said he had written on Tuesday to Abbas to enlist his support.
"I explained to (Abbas) that the territory allocated for his new state will remain open and undeveloped for a period of four years," Trump said.
"This could be the last opportunity they will ever have."
Trump's son-in-law Jared Kushner, who authored the plan behind the scenes but had minimal contact with Palestinian negotiators, was similarly blunt, telling them not to "screw up this opportunity."
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"I think that they will have a very hard time looking at the international community in the face, saying they're victims," he told CNN.
Mixed international reactions
Trump's plan triggered immediate condemnation on the streets of the Gaza Strip and the West Bank, with demonstrations expected to continue through the week.
Thirteen people were wounded in the West Bank in clashes with the Israeli army, the Red Crescent said.
There was also anger from Israeli hardliners. Transport Minister Bezalel Smotrich, from the far-right Yemina union, said his party "won't under any conditions agree to recognition, whether explicit or implicit, of a Palestinian state."
The ambassadors from three Arab nations — Oman, the United Arab Emirates and Bahrain — were at the White House, providing some evidence of Trump's claim to have growing support around the region.
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But international reaction was at best cautiously positive.
Saudi Arabia said it "appreciates" Trump's efforts and called for direct Israeli-Palestinian talks.
Russia, a growing force in Mideast politics, sounded skeptical.
"We do not know if the American proposal is mutually acceptable or not," Deputy Foreign Minister Mikhail Bogdanov told Russian news agencies.
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Netanyahu's office said he would travel to Moscow on Wednesday to present the plan in person to President Vladimir Putin.
Top EU diplomat Josep Borrell said the bloc would "study and assess" the US proposals, while Germany's foreign minister said "only a negotiated two-state solution, acceptable to both sides" would work.
Britain, which is leaving the EU on Friday and has long had a special relationship with Washington, gave the warmest reaction.
British Foreign Secretary Dominic Raab called it a "serious proposal, reflecting extensive time and effort."
Among the strongest foreign condemnations were from Turkey, which branded the plan "stillborn" and Iran, which called it "doomed to fail."
By contrast, Egypt urged "a careful and thorough examination of the US vision."
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