"This is a great moment for Israel's citizens and a historic moment for the State of Israel with substantial, historical and long-term ramifications," Netanyahu said at the start of the weekly cabinet meeting.
"President (Donald) Trump, you are a great friend to the State of Israel and we thank you," the prime minister added.
The embassy is expected to open on May 14, the day Israel declared its independence 70 years ago.
In a speech on Friday to a gathering of conservatives in suburban Washington, Trump recalled his controversial decision, saying he withstood enormous pressure to make the move.
"I put the word out that I may do it. I was hit by more countries and more pressure and more people calling, begging me 'Don't do it. Don't do it. Don't do it,'" Trump said.
"I said we have to do it. It's the right thing to do. It's the right thing to do, we have to do it. And I did it."
He said the campaign against moving the embassy was "incredible," but noted the campaign in favor of moving the embassy was also incredible.
Knesset Member Ahmad Tibi of the Arab Joint List wasn't as happy as Netanyahu about the American announcement. "President Trump's Jerusalem speech was unnecessary, wrong and unwise, and the decision to move the embassy to Jerusalem in short while raises questions on whether this is an attempt to help a friend in need," Tibi told Ynet on Sunday morning.
The move, MK Tibi said, serves as proof that the current US administration is biased in favor of Netanyahu but isn't actually helping Israel.
"This administration is standing firmly behind Benjamin Netanyahu. Anyone in the administration who has the State of Israel's best interest in mind should go for implementing the two-state vision and ending the occupation and the control over the Palestinian people.
"This administration of President Trump and his three settlement-supporting musketeers is closer to trying to mediate between the Bayit Yehudi and Likud parties than between Israel and the Palestinians."
As for US Ambassador to the UN Nikki Haley's comment that Trump's peace plan was nearly ready and would be presented soon, but that it wouldn’t be loved by either side, Tibi said: "I don't believe this representative, one of the American administration's most blatant representatives. I'm sure Netanyahu is well aware of the details of this plan and I can tell you he's losing sleep—and not because of this plan.