* Guatemala following U.S. lead in move from Tel Aviv
* Jerusalem status at heart of Israeli-Palestinian conflict
* Guatemalan embassy to relocate in May
By Dan Williams
JERUSALEM, March 5 (Reuters) - The Guatemalan ambassador was on the streets of Jerusalem on Monday to look at properties for when it joins the United States in moving its embassy there, a move Palestinians said was illegal and could kill any chance of peace.
Ambassador Sara Castaneda declined to speak to a Reuters correspondent who spotted her at an estate agent's office next door to Guatemala's consulate and one road over from a U.S. consulate building in west Jerusalem.
She set off on foot with the realtor and another man who pointed out properties as her chauffeured car idled at the curb. An Israeli diplomat who had been in contact with Castaneda told Reuters she was looking for an embassy site.
Guatemala was one of a handful of countries that backed U.S. President Donald Trump's Dec. 6 recognition of Jerusalem as Israel's capital, something most other countries decline to do as part of the city was seized and during the 1967 war and is considered occupied territory.
The status of Jerusalem is one of the biggest obstacles to any peace deal between Israel and the Palestinians, who want East Jerusalem as their capital.
The United States is an important source of assistance to Guatemala, and Trump had threatened to cut off financial aid to countries that supported a U.N. resolution calling on Washington to drop its recognition of Jerusalem.
Guatemalan President Jimmy Morales, who enjoys support from a base of conservative Christians, told a pro-Israel conference in Washington on Sunday the embassy would move to Jerusalem two days after the United States, in mid-May.
A senior Palestinian official said Morales' position was no surprise as he shared "the same attitude" of Trump and Israeli Prime Minister Benjamin Netanyahu.
"Add to that the evangelical Christian extremism and literalism (and) you have a combination of lethal factors that make these three people - Netanyahu, Trump and Morales - move toward adopting strategies and policies that are illegal ... and that destroy the chances of peace," Hanan Ashrawi, a member of the Palestine Liberation Organization's executive committee, told Reuters.
Prior to 1980, Guatemala and a dozen other countries maintained an embassy in Jerusalem.
Israel's passage in June 1980 of a law proclaiming Jerusalem its "indivisible and eternal capital" led to a U.N. Security Council resolution calling on countries to move their embassies to the Tel Aviv area. (Editing by Jeffrey Heller and Robin Pomeroy)
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