Friedman's push picked up steam in May after the Trump administration moved the embassy from Tel Aviv to Jerusalem over the vehement objections of the Palestinians, who claim the eastern part of the holy city as the capital of an eventual state.
The consulate had for years served as a de facto embassy to the Palestinians but will now be known as the Palestinian Affairs Unit of the embassy to Israel. It will remain in its current location, at least for now, the State Department said.
The step, which was announced by Secretary of State Mike Pompeo, means that the Jerusalem consulate will no longer have a separate channel to Washington to report on Palestinian affairs and will no longer be run by a consul general with authorities tantamount to those of an ambassador.
In a statement, Pompeo said the merger of the consulate into the embassy is intended to "achieve significant efficiencies and increase our effectiveness." He denied that it signaled any change in U.S. policy toward Jerusalem or the Palestinian territories.
"The United States continues to take no position on final status issues, including boundaries or borders," he said. "The specific boundaries of Israeli sovereignty in Jerusalem are subject to final status negotiations between the parties."
The administration, Pompeo said, remains "strongly committed to achieving a lasting and comprehensive peace that offers a brighter future to Israel and the Palestinians. We look forward to continued partnership and dialogue with the Palestinian people and, we hope in the future, with the Palestinian leadership."
Although Pompeo sought to portray the move as a bureaucratic management shift, the downgrading of the consulate has potent symbolic resonance, suggesting American recognition of Israeli control over east Jerusalem and the West Bank.
Michael Oren, Israel's deputy Cabinet minister for public diplomacy and a former Israeli ambassador to Washington, appeared to lend credence to that view in a tweet welcoming the step. "A great day for Israel, Jerusalem, and the United States," he wrote. The announcement "closing the U.S. consulate in Jerusalem and transferring its responsibilities to the embassy ends the last vestige of American support for the city's division. Israel is deeply grateful."
The Palestinians, who cut off nearly all contacts with the Trump administration after it recognized Jerusalem as Israel's capital late last year, meanwhile, quickly denounced it. Nabil Shaath, the international affairs adviser to Palestinian President Mahmoud Abbas, said it was a "very bad decision" that violated past agreements and continued President Donald Trump's decision to recognize Jerusalem as Israel's capital.
"Now, he is cutting the last connection he is said to have with the Palestinian people. He is practically saying Jerusalem is for Israel," Shaath said. "This decision has nothing to do with peace. It complicates peace and makes it impossible."
The consulate downgrade is just the latest in a series of decisions by Trump that the Palestinians say shows bias against them. The administration in December recognized Jerusalem as Israel's capital, ending a decades-long U.S. position that the status of the city should be determined in negotiations. In January, it slashed, and then ultimately ended, U.S. funding to the U.N. agency for Palestinian refugees as it also did with the vast majority of bilateral assistance to the Palestinians.
Last month, the administration ordered the closure of the Palestinian diplomatic mission in Washington, citing U.S. law that mandates its closure unless credible peace talks with Israel are underway. Since he became U.S. ambassador to Israel, Friedman, a longtime supporter and fundraiser for the West Bank settlement movement, had argued he should have authority over the consulate, which for decades has operated differently than almost every other U.S. consulate around the world.
Typically, the head of a consulate, known as a consul general, reports to the ambassador, who has "chief of mission authority" over all U.S. posts in the country. In contrast, the consul general running the Jerusalem consulate historically had his or her own chief of mission authority. The closest comparable case to the Jerusalem situation is the U.S. Consulate in Hong Kong, which also has its own chief of mission who does not report to the U.S. ambassador in Beijing.
Associated Press writer Josef Federman in Jerusalem contributed to this report.