Erdogan was speaking at an extraordinary summit of the Organization of Islamic Cooperation (OIC) in Istanbul.
The Organization of Islamic Cooperation (OIC) is the second-largest inter-governmental body after the United Nations, and its 57 member states spread over four continents.
As the rotating president of the OIC, Erdogan said U.S. President Donald Trump's decision on Jerusalem was a threat to all humanity, including Israel and America.
Branding Israel as an "occupying" and “terrorist” state, Erdogan said the country had been "almost rewarded" by Trump for its "terrorist actions".
"Terrorist [Israeli] soldiers take 10-year-old children into custody and put them behind bars. A 14-year-old kid is blindfolded by around 20 soldiers and clubbed with rifle butts," he said, referring to a Palestinian boy who was detained last Thursday during clashes in the West Bank city of Hebron (Al-Khalil).
Erdogan went on to accuse the U.S. of "standing by those who make peace impossible" and "playing into the hands of all fanatics" at a time of an intense fight against terrorism.
'Independent and sovereign Palestine'
The president praised those countries which have refused to recognize the U.S. move on Jerusalem, saying: "A resolute stance over Jerusalem has been confirmed [by the leaders] during all the conversations that I've held so far, including with Pope.
"Only Israel, which holds Jerusalem under occupation, supported the U.S.' unlawful decision. We thank all the countries who did not accept this illegitimate decision."
Erdogan reiterated that Muslim countries would never give up on their demand for an independent and sovereign Palestinian state.
"Peace in our region and in Jerusalem will only be established through the efforts of upright, honest and fair people from every nation and faith," he said.
The president added he believed all 196 member states of the United Nations would stand against the U.S. move.
Al-Aqsa compound, also known as Haram al-Sharif, will belong to Muslims forever, he said, calling on the U.S. to withdraw their "wrong, provocative and unlawful" decision.
Last week, Trump announced his decision -- despite widespread opposition across the Middle East -- to formally recognize Jerusalem as Israel’s capital.
The announcement sparked strong condemnation from around the world, including Turkey, the EU and the UN.
Jerusalem remains at the core of the Israel-Palestine conflict, with Palestinians hoping that East Jerusalem -- now occupied by Israel -- might eventually serve as the capital of a future Palestinian state.
During his election campaign last year, Trump repeatedly promised to relocate the U.S. Embassy in Israel from Tel Aviv to Jerusalem.
The OIC was established during a historic summit in Rabat, Morocco in 1969 following an arson attack on the Al-Aqsa Mosque in occupied Jerusalem.
Al-Aqsa was set on fire by an Australian Christian called Michael Denis Rohan on Aug. 21, 1969. The shrine and a 1,000-year-old pulpit were totally destroyed as well as several historical sites.
Rohan had joined a U.S.-based sect called “The Church of God” and believed that setting fire to Al-Aqsa would hasten the coming of the Messiah.
He was later declared mentally unstable and is reported to have died in psychiatric care in 1995.