Foreign Minister Julie Bishop described her meeting with envoys of up to 18 countries accredited in Canberra, including Jordon, Iraq, Iran and Egypt, as "constructive."
She said in a statement that she told them her government's position is consistent with UN resolutions on the Palestinian territories. Australia also remains committed to achieving a just and lasting two-state solution, she said.
- Australia: East Jerusalem not 'occupied' by Israel Australian trade at risk over East Jerusalem decision
Attorney-General George Brandis provoked threats of trade sanctions from the Arab world when he told a Senate committee on June 5 that Australia had dropped the term "occupied" in its description of east Jerusalem because it was "neither appropriate nor useful."
Brandis was backed this week by Prime Minister Tony Abbott.
"It is important, as far as you can, not to use loaded terms, not to use pejorative terms, not to use terms which suggest that matters have been prejudged, and that is a freighted term," Abbott said. "The truth is they're disputed territories."
Jordan Ambassador Rima Ahmad Alaadeen, on behalf of her fellow ambassadors, said the meeting was "positive."
"They assured us that there was no change in their position," she told reporters. But the reasoning behind the shift in terminology was apparently not discussed.
"'Disputed' was not discussed this afternoon," Alaadeen said.
"Occupied East Jerusalem is a very, very important and very raw nerve for 1.5 billion Muslims and ... Christians in our part of the world," she said.
Alaadeen said she could not say whether there would be trade sanctions against Australia. The controversy was on the agenda of the 57-state Organization of Islamic Cooperation summit of foreign ministers in Jeddah this week.
"There is a clause or a paragraph ... on the recent events in Australian policy regarding east Jerusalem, so we have to wait and see what transpires," she said.
Iraq's Ambassador to Australia, Mouayed Saleh, who also attended the meeting, similarly said he could not rule out trade sanctions.
Before the meeting, Bishop played down the international furor.
"I'm sure that the ambassadors will want to continue the very strong relationship that we have with their countries," she told Australian Broadcasting Corp.
But Arab Bank Australia chief executive Joseph Rizk saw some economic risk to Australia, telling ABC that while he does not see a Middle East boycott of Australia, "over time, it will affect trade if the policy isn't clarified."