The deaths, most from gunfire by Israeli forces, came as Palestinians amassed at the border in far greater numbers than in other recent demonstrations there.
The crowds had swelled to tens of thousands by the time the ceremony to open the embassy had started about 50 miles away in the Arnona neighborhood of Jerusalem.
In a videotaped statement played at the ceremony, President Donald Trump said the move of the embassy from Tel Aviv has been "a long time coming."
The president said the United States "remains fully committed to facilitating a lasting peace agreement" between Israel and Palestinians. "We extend a hand in friendship to Israel, the Palestinians, and to all of their neighbors."
"May there be peace," Trump said. "May God bless this embassy."
The killings of Palestinian protesters made today the bloodiest in Gaza since the end of the 2014 Gaza war, officials said.
The Palestinian Foreign Minister and the ministry of health in Ramallah asked the international community to stop the "Israeli massacre in Gaza."
"We hold Israeli government responsible for all the killing and the consequences resulting of this killing," they said in a joint statement.
Protesters began gathering at the Gaza border ahead of the embassy ceremony.
Protesters began gathering ahead of the embassy ceremony.
A 21-year-old and a 29-year-old were among the first killed by Israeli soldiers, according to the Gaza Health Ministry. In the last seven weeks, more than 50 Palestinians have been killed in protests along the Gaza border, according to the Gaza Health Ministry.
President Trump recognized Jerusalem as Israel's capital in December, setting off protests by Palestinians who see East Jerusalem as the capital of their future state. Both Israelis and Palestinians consider Jerusalem the holiest site of their respective religions.
The opening of the U.S. embassy in Jerusalem coincides with the 70th anniversary of the establishment of the state of Israel. For Palestinian, Tuesday marks the anniversary of "naqba," or catastrophe, when hundreds of thousands of people fled or were forced from their homes during the war surrounding the event.
President Trump did not make the trip to Israel for the official opening, but sent daughter and adviser Ivanka Trump and son-in-law Jared Kushner in his place. Treasury Secretary Steve Mnuchin also made the trip.
"I am so proud to be here today in Jerusalem, the eternal heart of the Jewish people," Kushner told those gathered at the ceremony.
He said President Trump made good on his promise just five months after announcing that the U.S. embassy would be relocated to Jerusalem.
"While presidents before him have backed down from their pledge to move the American embassy, once in office this president delivered. Because when President Trump makes a promise, he keeps it," Kushner said.
Israeli Prime Minister Benjamin Netanyahu described the opening of the U.S. embassy in as "a day that will be engraved in our national memory for generations."
"This is a great day. A great day for Jerusalem. A great day for the state of Israel," Netanyahu said at the dedication ceremony.
He thanked President Trump for "having the courage" to keep his promise and concluded his remarks by calling Jerusalem the "eternal, undivided capital of Israel."
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