Netanyahu said the controversial announcement by US President Donald Trump - which prompted diplomatic alarm and street protests across the Islamic world - had "put facts squarely on the table".
As he arrived for talks in Brussels, Netanyahu said he expected "all or most" European countries would follow the US -- but the 28-nation bloc's foreign policy head Federica Mogherini said its position remained that Jerusalem should be a capital for both Israelis and Palestinians.
"It doesn't obviate peace, it makes peace possible, because recognising reality is the substance of peace, it's the foundation of peace," he said in a statement alongside Mogherini ahead of a breakfast meeting with EU foreign ministers.
"I believe that all or most of the European countries will move their embassies to Jerusalem, recognise Jerusalem as Israel's capital, and engage robustly with us for security, prosperity and peace," Netanyahu said.
Mogherini said the EU -- the Palestinians' largest donor -- would stick to the "international consensus" on Jerusalem.
She reiterated the EU's stance that "the only realistic solution" for peace is two states -- Israel and Palestine -- with Jerusalem as the capital of both and the borders returned to their status before the 1967 Arab-Israeli War.
And she pledged to step up efforts with the two sides and regional partners including Jordan and Egypt to relaunch the peace process.
Both Israelis and Palestinians claim Jerusalem as their capital and previous peace plans have stumbled over debates on whether and how to divide sovereignty or oversee holy sites.
Mogherini also condemned attacks on Israel -- after Netanyahu took aim over the weekend at what he called Europe's "hypocrisy" for condemning Trump's statement, but not "the rockets fired at Israel or the terrible incitement against it".
"Let me condemn in the strongest possible way all attacks on Jews everywhere in the world, including in Europe, and on Israel and on Israeli citizens," Mogherini said.
"There is now an effort under way to bring forward a new peace proposal by the American administration. I think we should give peace a chance. I think we should see what is presented and see if we can advance this peace," he said.
Trump's son-in-law and senior adviser Jared Kushner has been working with a small team to develop a new US proposal to revive peace talks between Israel and the Palestinians, but it is not clear what progress he is making.
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