Prime Minister Jacinda Ardern criticised the United States' move to recognise Jerusalem as the capital of Israel, saying she has "no doubt this will make things difficult".
President Donald Trump announced the shifting of the US embassy from Tel Aviv to Jerusalem, despite intense Arab, Muslim and European opposition that would upend decades of US policy and risk potentially violent protests.
Ms Ardern said New Zealand has always supported a two state solution.
"The way Jerusalem is defined is an issue that needs to be resolved within the context of resolution of issues between Israel and Palestine," she said today.
When asked if she thought it was a step towards peace or a step backwards she said, "this won't take us further".
"Our view is that Jerusalem and issues around Jerusalem's religious sites need to be resolved within the context of establishing that two state solution."