Palestinian President Mahmoud Abbas told the Organization of Islamic Cooperation (OIC) delegates that his people would refuse any role for the US in future peace talks following Trump's declaration.
"We do not accept any role of the United States in the political process from now on because it is completely biased towards Israel," Abbas said.
Abbas said Washington's recognition of Jerusalem as the Israeli capital as "the greatest crime" that showed it was no longer "fit" to broker talks.
Instead, the Palestinian president said he wanted to see the United Nations taking charge of the peace process and the creation of a new mechanism.
A draft declaration, agreed by delegates from all 57 members from OIC on Wednesday, invited "all countries to recognize the State of Palestine and East Jerusalem as its occupied capital."
Wednesday's emergency summit in Istanbul, called by Turkish President Recep Tayyip Erdogan, came in response to US President Donald Trump's recognition last week of Jerusalem as Israel's capital.
Muslim leaders said they considered Trump's Jerusalem announcement to be "null and void legally," adding that demonstrated that the United States was no longer a sponsor of peace in the Middle East.
Trump's announcement was "a deliberate undermining of all peace efforts" that would give impetus to "extremism and terrorism" the OIC declaration said.
Washington's actions, the OIC added, had amounted to the "encouragement of Israel... to continue its policy of colonialism, settlement, apartheid and ethnic cleansing."
A final statement from the OIC was expected later on Wednesday.
Erdogan told delegates: "With this decision [by the US to recognize Jerusalem as the Israeli capital], Israel, which is responsible for occupation, blockade, unlawful settlements, home demolitions, evictions, land asset appropriations, disproportionate violence and murders, was rewarded for all its terrorist actions."
Erdogan's rhetoric on the US Jerusalem move had been particularly harsh ahead of the summit. The Turkish president, who has presented himself as a champion of the Palestinian cause, warned last week that US recognition of Jerusalem would plunge the world "into a fire with no end" and labeled Israel a "terrorist state."
Jerusalem's status remains one of the core issues of the decades-long Israeli-Palestinian conflict. Israel captured the predominantly Arab eastern part of the holy city during the 1967 Middle East war.
Its claim to the entire of city, which it sees as the ancient capital of the Jewish people, was never internationally recognized.
Trump reversed that policy last week. The US president's decision on Jerusalem provoked worldwide condemnation from leaders, Arab and otherwise, and sparked violent protests across the Arab world, particularly in the Israeli-occupied territories Gaza and the West Bank.
The Palestinians also lay claim to Jerusalem and have repeatedly insisted during peace negotiations that the eastern part of the city be the capital of their future state.
Last week's clashes between Palestinian youths and with Israeli security forces led to two deaths among the protestors.
However, no state has yet announced any concrete measures against the US or Israel.
Iran's Rouhani accused the United States of lacking any respect for the Palestinians and their rights to a nation. Arriving at the summit, Rouhani posted on Twitter that Trump's move showed that the US was not "an honest mediator and will never be," adding that Washington wanted only to "secure the interests of the Zionists."
Jordan's King Abdullah II also warned that recognition of Jerusalem as Israel's capital was "dangerous and destabilizing decision."
Jordan, which along with Egypt is one of only two Arab nations with diplomatic ties to Israel, stressed that "our region cannot enjoy peace without the two-state solution," referring to the peace mechanism that would see Israelis and Palestinians granted their own separate state.
Many close allies of Unite States — including Egypt, Saudi Arabia and the United Arab Emirates — are unlikely to risk souring their relationship with Washington by endorsing an OIC statement condemning Israel.
However, despite not attending the OIC summit, Saudi King Salman echoed calls from Istanbul that eastern Jerusalem be handed back to the Palestinians.
Salman reportedly told the kingdom's Consultative Council: "The kingdom has called for a political solution to resolve regional crises, foremost of which is the Palestinian issue and the restoration of the Palestinian people's legitimate rights, including the right to establish their independent state with east Jerusalem as its capital."