Pacific island nation Papua New Guinea opened its embassy to Israel in Jerusalem on Tuesday, becoming only the fifth country to have its mission in the holy city.

The status of Jerusalem is the most sensitive issue of the Israeli-Palestinian conflict.

Papua New Guinea's Prime Minister James Marape inaugurated the embassy in the presence of his Israeli counterpart Benjamin Netanyahu at a function in Jerusalem.

"Many nations choose not to open their embassies in Jerusalem, but we made the conscious choice," said Marape, whose country previously had no embassy in Israel.

"For us to call ourselves Christian, paying respect to God will not be complete without recognizing that Jerusalem is the universal capital of the people and nation of Israel," he said, inviting Netanyahu to open Israel's embassy in Papua New Guinea.

Netanyahu welcomed the opening of the mission in Jerusalem, making Papua New Guinea the first Asia-Pacific country to do so.

"We are very proud and very appreciative of that fact," he said, adding that the new link between the two countries "will not only enable us to cherish the past, but seize the future".

Most of the countries that have a formal diplomatic presence in Israel have their embassies in Tel Aviv, the country's commercial center.

Only a handful of countries have their missions in Jerusalem — the United States, Kosovo, Guatemala, and Honduras.

Papua New Guinea's decision follows a landmark security pact, tabled in the country's parliament in June and obtained by AFP, which allows the US military to develop and operate out of bases in Papua New Guinea. The pact underpins Washington's effort to outflank China in the Pacific.

After capturing it in 1967, Israel annexed east Jerusalem, including the Old City, in a move never recognized by the international community.

Israel views the whole city as its capital, a stance backed by former US president Donald Trump, who moved Washington's embassy there.