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But Mr. Trump has created the perfect opportunity to combine his unveiling of a U.S. peace plan with an announcement that he will be moving the embassy to the Israeli capital.

The administration indicates Mr. Trump will announce his peace proposal later this year. To gain approval from Palestinians and Arab states, it will need to include an explicit endorsement of a Palestinian state. He will need to be clear that such a state must commit to live in peace alongside Israel, accept provisions to ensure Israel’s security, and recognize Israel as a Jewish state.

That is consistent with Israeli policy. According to U.S. officials, Prime Minister Benjamin Netanyahu, in closed conversations, has reiterated his commitment to his 2009 Bar-Ilan speech that supports “a demilitarized Palestinian state that recognizes the Jewish state.” And foreign diplomats report that U.S. officials have confirmed they understand a two-state solution must be included in any viable U.S. peace plan.

Packaging the unveiling of a U.S. peace plan with an announcement of the embassy move could ensure that the latter reinforces the former. But Mr. Trump must be clear on two points: The embassy will relocate to West Jerusalem, the area of the city under undisputed Israeli sovereignty. He also must explain that East Jerusalem’s status will need to be negotiated, and the U.S. expects the outcome to include a Palestinian capital in the city’s Arab neighborhoods, as part of a unified city.

This approach has two advantages. First, it reorients U.S. policy toward a two-state solution. Second, it punctures myths that both sides use to deceive themselves and delay progress. Palestinians will see that the U.S. strongly supports historic Jewish and Israeli claims to Jerusalem, and Israelis will hear from their ally that to end the conflict they need to acknowledge a Palestinian state with a capital in East Jerusalem.

There are signs of openness on both sides. Arab states, which already acknowledge Israel as a strategic partner, will be able to help persuade the Palestinians that they will gain from the U.S. endorsement of a Palestinian capital in Jerusalem. In advance, it will be necessary for the U.S. to discuss these ideas with Arabs and the Palestinians to help prepare them for the embassy move.

In Israel, there is recognition from surprising quarters that the Jewish state’s own interests require a new approach on Jerusalem. As Ben Caspit reported in al-Monitor, Anat Berko, a Likud member of the Knesset, handpicked by Mr. Netanyahu, has presented a plan that would transfer control of most East Jerusalem Arab neighborhoods from Israel to the Palestinian Authority. That would help ensure a stable Jewish majority in Israeli Jerusalem. Defense Minister Avigdor Lieberman has long expressed concern about the demographic balance in Israel. His position logically suggests that Israel has no interest in absorbing the more than 300,000 Palestinian residents of East Jerusalem. As growing numbers of Arab residents accept Israel’s offer to apply for citizenship, the Israeli Interior Ministry seems to be having second thoughts.

Planning should begin now for the logistical, budgetary and security implications of an embassy move, including likely protests. But these challenges are manageable and should not prevent the U.S. from relocating the embassy to Jerusalem and through it reinforcing U.S. interests in a two-state solution.

Mr. Shapiro is a visiting fellow at the Institute for National Security Studies in Tel Aviv. He served as U.S. ambassador to Israel, 2011-17.