Paraguay has become the second country to follow the lead of the United States in moving its embassy to Jerusalem from Tel Aviv.
President Horacio Cartes of Paraguay attended the opening ceremony with Israeli Prime Minister Benjamin Netanyahu on Monday.
Guatemala relocated its embassy last Wednesday, just days after the US made the political sensitive move.
The US decision drew international condemnation and angered Palestinians.
Israeli military snipers killed more than 60 protesters and wounded thousands more in protests that coincided with the move.
Palestinian leaders see East Jerusalem as the capital of their future state and say the relocation of Embassies there ahead of a peace agreement is a provocative move which disqualifies the US as a peace mediator.