As well as talks with prime minister Benjamin Netanyahu and Palestinian Authority president Mahmoud Abbas, Mr Trump also planned to visit the Holocaust memorial Yad Vashem and the Western Wall.
Israeli President Reuven Rivlin pointed to his country's economic successes - as well as the potential of Israeli-Palestinian business partnerships - in remarks during a joint appearance with Trump in Jerusalem on Monday. He also announced $110 billion in USA arms sales to Saudi Arabia.
U.S. President Donald Trump said on Monday that he had come to Israel from a weekend visit to Saudi Arabia with new reasons to hope that peace and stability could be achieved in the Middle East.
11,000 police officers from across Israel have already been deployed to Jerusalem in order protect the US president and his entourage.
A White House official blamed Trump's fatigue for the switch. Israeli officials are on edge over the U.S refusal to say the Western Wall is part of Israel.
Trump has also backed away a vow made during his presidential campaign to move the U.S. Embassy from Tel Aviv to Jerusalem.
The Obama administration's nuclear negotiations further fueled Gulf nations' worries about Iran's regional intentions, especially as it backs Shiite militias fighting the Islamic State group in Iraq and supported the government of embattled Syrian President Bashar Assad that many had opposed through supporting rebel groups there. The stop in Israel comes after the president's visit to Saudi Arabia, the birthplace of Islam, and will be followed by a trip to the Vatican, where Trump will meet with the pope.
Former Palestinian minister and Birzeit University Professor Ghassan Khatib said Trump's trip was a "public relations visit" which he was only making because he could not visit Saudi Arabia without also visiting Israel. Some Palestinians said they were disappointed by the omission. He did not elaborate and it is not clear how big the plan is.
The concessions included construction permits for Palestinians in sections of the West Bank that are under Israeli control, areas where Palestinians have previously been barred, officials said.
One point of contention in the talks: the fate of east Jerusalem, which Israel captured in the 1967 Mideast war. The Trump administration drew the ire of some Israelis this week when officials declined to state that the Western Wall was part of Israel, as has been US policy. The area is home to sensitive religious sites, including the Western Wall, the holiest place where Jews can pray. The Palestinians see east Jerusalem as the capital of their future state.
Israel occupied the West Bank and east Jerusalem in 1967 and later annexed the east of the city in a move never recognised by the worldwide community.