President Clinton yesterday waived a 1995 law requiring the State Department to move the U.S. Embassy in Israel from Tel Aviv to Jerusalem, saying he was acting to safeguard the Middle East peace talks and to "protect the national security interests of the United States."

The Clinton administration has repeatedly resisted congressional pressure to relocate the embassy to Jerusalem on the grounds that the highly symbolic move would inflame passions and disrupt negotiations between Israel and the Palestinians.

If Clinton had not acted, the State Department would have forfeited about $500 million in current funding for security and other improvements at embassies around the world. That was the penalty for noncompliance that Congress set four years ago when it declared that the United States should formally recognize Jerusalem as Israel's capital and relocate the embassy to the city by May 31, 1999.

As is common in foreign policy legislation, the measure gave the president waiver discretion.

Congress chose that date because, under the Oslo peace agreements between Israel and the Palestinians, negotiations on the "permanent status" of Jerusalem were supposed to conclude by May 4 of this year. In fact, the talks have yet to begin, except for one ceremonial session.

The issue of Jerusalem is so sensitive that the Israeli newspaper Ha'aretz sparked a small furor last month by reporting that U.S. Ambassador Edward S. Walker Jr. had rented an apartment in the holy city as a second residence. U.S. officials strongly denied that any political statement was intended.

Officials said ambassadors in Israel have long maintained a hotel suite in Jerusalem, where they often stayed overnight after official functions rather than drive back to Tel Aviv. When the lease on Walker's suite ran out in November, he simply moved down the street to a modest apartment in a residential wing of the new Hilton Hotel, officials said.

Yesterday, however, Sen. Daniel Patrick Moynihan (D-N.Y.), a strong advocate of relocating the embassy, expressed satisfaction in a letter to Clinton that "the United States ambassador has begun the long overdue process of taking up residence in the city of Jerusalem."

American Jewish groups that favor a negotiated settlement with the Palestinians, including Americans for Peace Now and an umbrella organization of Reform rabbis, issued statements welcoming Clinton's decision. Lionel Kaplan, president of the American-Israel Public Affairs Committee, said he was "disappointed" by the waiver.