President Trump faces pressure from one of his largest donors to deliver on his promise to move the USA embassy in Israel from Tel Aviv to Jerusalem at the same time as he seeks to broker peace between the state and the Palestinians.
Tillerson's remarks were the first time that a senior figure in the President Trump administration has publicly raised the possibility that moving the embassy to Jerusalem could harm the new administration's aspirations to renew the peace process and reaching an Israeli-Palestinian agreement.
The biggest point of contention between the two allies has been over whether Trump would keep his campaign pledge to move the American embassy. It later annexed east Jerusalem in a move never recognized by the global community. However, Netanyahu's office called this report a "lie," and released some portions of the February meeting's minutes.
When running for president, Donald Trump offered a standard Republican pledge to move the United States embassy from Tel Aviv to Jerusalem.
"[Dermer] explained why moving the embassy would help advance peace and not the opposite".
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The rival claims to Jerusalem lie at the heart of the Israeli-Palestinian conflict and no countries now have their embassies in Jerusalem, instead basing them in Israel's commercial capital Tel Aviv.
Israeli Prime Minister Benjamin Netanyahu asked to join President Trump at the site during Trump's visit to Israel, but US officials preparing the president's trip rebuffed the request, according to Channel 2 TV in Israel. No sitting US president has ever visited the holy site.
The American official suggested that the holy site is "not your territory".
"The statement that the Western Wall is part of the West Bank was received with shock", an official in Netanyahu's office said, speaking on condition of anonymity.
Trump's visit to Israel will take place from May 22 to 23 - just before Jerusalem Day - after he stops in Saudi Arabia and before he goes on to the Vatican. The Israelis then asked whether a TV crew providing live coverage of the Trump visit could at least continue to film here there.
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Top officials at the State Department, Department of Defense and the U.S. intelligence community are urging the White House not to recognize Jerusalem as Israel's capital, warning that such a decision would be harmful to the peace process and carry broader regional risks, a senior administration official and several USA officials told CNN.
Even the announcement that Trump would be visiting other countries on his foreign tour caused problems: White House social media director Dan Scavino posted on his Facebook page that Trump would also be visiting "Palestine", which the United States does not recognize as a country. "Fox News correspondent Conor Powell also tweeted on Monday that "#Netanyahu told #Trump not to move embassy at this time". Israel claims the entire city as its undivided capital.
The former bankruptcy lawyer has expressed scepticism over the two-state solution to the Israeli-Palestinian conflict, the basis of years of U.S. peace efforts.
He also surrounded himself with a core of advisers with strong ties to the West Bank settlement movement, including his ambassador, David Friedman.
Friedman, who visited the Western Wall after his arrival on Monday, said Trump had given him "the unequivocal and unambiguous mandate to support the state of Israel in every way and in all ways".
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Asked about the president's tweet at a press briefing Friday, White House Press Secretary Sean Spicer declined to elaborate. The FBI director serves a 10-year term but can be replaced by the president.
Trump drew worldwide criticism in February when, during a news conference with Netanyahu, he appeared to back away from a US commitment to Palestinian statehood, saying he would leave it up to the parties to decide.