"By taking Jerusalem off the table I wanted to make it clear that Jerusalem is the capital of Israel and as for specific boundaries, I would support what both sides agreed to," Trump told newspaper Israel Hayom on Sunday.
Trump's comments echoed those he made during his meeting with Israeli Prime Minister Benjamin Netanyahu at the World Economic Forum in Davos, Switzerland last month.
"They never got past Jerusalem. We took it off the table. We don’t have to talk about it anymore," Trump told reporters.
Breaking with years of US policy, Trump announced the move on December 6, drawing international condemnation and sparking a wave of heated protests around the world.
A resounding majority of United Nations member states declared Trump's move as "null and void" in a non-binding resolution.
The status of Jerusalem, which is home to holy religious sites and has particular significance for Muslims, Christians and Jews, has long remained a sensitive topic and one of the core issues in the Israeli-Palestine conflict.
In the exclusive interview with Israel Hayom, Trump also urged both Israel and Palestine to make "hard compromises" to reach a peace agreement, as he warned against Israeli settlements.
In a rare criticism of the Israeli leadership, the US president questioned Israel's commitment to making peace with the Palestinians.
"Right now, I would say the Palestinians are not looking to make peace, they are not looking to make peace," he told the Hayom, which is owned by American billionaire and Trump backer Sheldon Adelson.
"And I am not necessarily sure that Israel is looking to make peace," the Republican president added.
'Careful with settlements'
Israel occupied East Jerusalem in 1967 and proceeded to effectively annex it, in breach of international law.
The Palestinian leadership in the occupied West Bank, however, see East Jerusalem as the capital of a future Palestinian state.
Today, 86 percent of East Jerusalem is under the direct control of the Israeli authorities and Jewish settlers.
Trump warned Netanyahu's government against Israeli settlements getting in the way of negotiations.
"The settlements are something that very much complicates and always have complicated making peace, so I think Israel has to be very careful with the settlements," he said.
Between 600,000 and 750,000 Israelis live in sizeable settlements, beyond the internationally recognised borders of their state.
Phyllis Bennis, author of Understanding the Palestinian-Israeli Conflict, doubts Trump's comments represent a policy shift by the US.
"I think what we are seeing here is not the end of the US role as an honest broker because it never was an honest broker," she told Al Jazeera. "This [his comments] is simply a clearer acknowledgment of that reality."
"President Trump has made it clear that he is more officially and formally pro-Israel than another recent president," added Bennis, who is also a fellow at the Institute for Policy Studies.