A spokesman for Palestinian President Mahmoud Abbas said the veto was "unacceptable and threatens the stability of the international community because it disrespects it."
The 14 other countries on the Security Council voted in favour, however US Ambassador Nikki Haley exercised the American veto.
Nabil Abu Rudeina told AFP in Arabic that the support for the resolution, which included US allies France, Italy and Japan, "showed the (American) isolation. The international community must work now to protect the Palestinian people."
Israeli Prime Minister Binyamin Netanyahu immediately thanked Haley for her stance.
"Thank you, Ambassador Haley," he posted on his official Twitter account. :Truth defeated lies. Thank you, President Trump. Thank you, Nikki Haley."
Trump's December 6 announcement that he would recognise Jerusalem as Israel's capital and move the American embassy there from Tel Aviv has faced heavy international criticism.
People of Palestine see the eastern part of the city as the capital of their future state.
