Guatemala is one of only a handful of nations that supported U.S. President Donald Trump's decision in December to recognize Jerusalem as Israel's capital.
Guatemalan President Jimmy Morales attended the opening Wednesday morning of the embassy in the Technological Park of southern Jerusalem's Malha neighborhood.
In his remarks, Netanyahu praised Morales and highlighted Guatemala and Israel's long history of close bilateral relations between the two countries.
Guatemala on Wednesday opened its embassy in Jerusalem, becoming the second country to do so. Israel said all 86 countries with diplomatic missions in Israel were invited to the event, and 33 accepted.
The opening comes almost 30-years after the UN ordered Guatemala and 13 other nations to relocate their embassies from Jerusalem to Tel Aviv.
"It's not a coincidence that Guatemala is opening its embassy in Jerusalem right among the first".
Israel has always claimed Jerusalem as its capital yet most countries opted to place their embassies in coastal Tel Aviv because of the holy city's contested status.
Senior Palestinian negotiator Saeb Erekat said: "The Guatemalan government has chosen to stand on the wrong side of history, to side with violations of worldwide law and human rights, and to take a hostile step against the Palestinian people and the Arab world". It closed in 1980 following a United Nations Security Council resolution that called for such closures. "And we'd also like to see Israel Streets in Guatemala".
Turkey has expressed outrage over the killing by Israeli forces on Monday of 60 Palestinians during protests and clashes on the Gaza border and also blamed tensions on the USA decision to move its embassy for Israel to Jerusalem from Tel Aviv.
Palestinian leaders said by relocating the embassy the United States had created incitement and instability in the region and abrogated its role as a peace mediator.
On Monday, the US officially relocated its Israel embassy from Tel Aviv to Jerusalem, drawing widespread condemnation and protest from across the Arab and Muslim world.
The ministry "sees this participation as a grave breach of global law and United Nations resolutions which confirm that Jerusalem has been occupied since 1967 and ban countries from moving their embassies there", the statement said.
The Israeli army and police deployed thousands of officers in Jerusalem and along the Gaza Strip for the US embassy relocation ceremony.