President Donald Trump announced the decision to shift the embassy in December as the administration prepared its peace plan for the region.
Palestinian President Mahmoud Abbas said in wake of Trump's announcement that the United States had effectively disqualified itself from peace process.
Israel captured East Jerusalem from Jordanian control in the 1967 Middle East war and annexed it in a move not recognised internationally.
Israel put up the first "U.S. Embassy" road signs in its capital of Jerusalem Monday morning, weeks after President Donald Trump announced the U.S. would move its embassy from Tel Aviv and recognize Israel's capital. They were promised East Jerusalem as their capital by global community during the U.S. sponsored peace talks through last several decades.
Mr Trump says he is making good on USA legislation and presidential pledges dating back decades.
Israel claims the entire city as its eternal capital.
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"The Embassy will initially be located in the Arnona neighborhood, in a modern building that now houses consular operations of U.S. Consulate General Jerusalem", State Department spokeswoman Heather Nauert said in a statement in February.
The global community, including the USA, does not recognise Israel's jurisdiction and ownership of the city. The Palestinians, on the other hand, see the eastern sector as the capital of their future state and oppose any Israeli attempt to extend sovereignty.
President Trump has denied that USA officials told Israel's Defence Minister Avigdor Liberman about the request to transfer control of four areas that would become the capital of a new Palestinian state under the U.S. peace plan.
Palestinians say that moving the embassy would prejudge one of the most sensitive issues in the conflict - the status of Jerusalem - and undermine the US' status as an honest mediator.
Last month, Cartes said that he wanted to relocated the country's embassy to Jerusalem before the end of his presidential term in August.