It was the highest Palestinian death toll in a single day since a series of protests dubbed the "Great March of Return" began at the border with Israel on March 30, and since the 2014 Gaza war.
The health officials said 900 Palestinians were wounded, about 450 of them by live bullets.
Tens of thousands streamed to the coastal enclave's land border on Monday, some approaching the Israeli fence - a line Israeli leaders said Palestinians would not be allowed to breach.Clouds of black smoke from tyres set alight by demonstrators rose in the air.
Demonstrators, some armed with slingshots, hurled stones at the Israeli security forces, who fired volleys of tear gas and intense rounds of gunfire.
"Today is the big day when we will cross the fence and tell Israel and the world we will not accept being occupied forever," said Gaza science teacher Ali, who declined to give his last name.
"Many may get martyred today, so many, but the world will hear our message. Occupation must end," he said.
"A great day for Israel," the US president, who stoked Arab anger by recognising disputed Jerusalem as Israel's capital in December, said in a tweet.
Prime Minister Benjamin Netanyahu, in lockstep with Trump over fulfilling a long-standing US promise to move the embassy to the holy city and over Washington's withdrawal from the Iran nuclear deal last week, echoed the sentiment.
"What a moving day for the people of Israel and the State of Israel," Netanyahu said.
The Palestinians, who seek their own future state with its capital in East Jerusalem, have been outraged by Trump's shift from previous administrations' preference for keeping the US Embassy in Tel Aviv pending progress in peace efforts.
Those talks, aimed a finding a two-state solution to the Israel-Palestinian conflcit, have been frozen since 2014. Other international powers worry that the US move could also inflame Palestinian unrest in the occupied West Bank, which Israel captured along with East Jerusalem in the 1967 Middle East war.
Most countries say the status of Jerusalem - a sacred city to Jews, Muslims and Christians - should be determined in a final peace settlement and that moving their embassies now would prejudge any such deal.
Man In Wheelchair Killed
The 41 Palestinian dead on Monday included a 14-year-old boy, a medic and a man in a wheelchair who had been pictured on social media using a slingshot.
The Israeli military identified three of those killed as armed militants whom it said tried to place explosives near the fence in the southern Gaza Strip.
The latest casualties raised the Palestinian death toll to 86 since the protests started six weeks ago. No Israeli casualties have been reported.
Some flew flaming kites to try and torch bushes on the other side of the frontier and distract Israeli marksmen. Hundreds of Palestinians were treated for tear gas inhalation.
"The IDF (Israel Defence Forces) will act forcefully against any terrorist activity and will operate to prevent attacks against Israelis," the military said in a statement.
The killings have drawn international criticism, but the United States has echoed Israel in accusing Gaza's ruling Hamas movement of instigating violence, an allegation it denies.
More than 2 million people are crammed into the narrow strip, which is blockaded by Egypt and Israel
Kushner Promotes Peace Deal
In excerpts seen by Reuters of a speech he planned to deliver at the embassy inauguration ceremony, Kushner said it is possible for both sides in the Israeli-Palestinian conflict "to gain move than they give" in any peace deal.
"Jerusalem must remain a city that brings people of all faiths together," Kushner, the US envoy to the Middle East, will say at the opening.
The Trump administration has nearly completed a long-awaited Israeli-Palestinian peace plan but is still undecided on how and when to roll it out, given Palestinians' outrage over the embassy move and their contention that Washington can no longer be an honest broker.
Palestinian Prime Minister Rami Hamdallah, in a statement on Monday, accused the United States of "blatant violations of international law".
The protests are scheduled to culminate on Tuesday, the day Palestinians mourn as the "Nakba" or "Catastrophe" when, in 1948, hundreds of thousands of them were driven out of their homes or fled the fighting around Israel's creation.
"Choosing a tragic day in Palestinian history (to open the Jerusalem embassy) shows great insensibility and disrespect for the core principles of the peace process," Hamdallah wrote.
In London, the British government said it had no plans to move its Israel embassy from Tel Aviv to Jerusalem, and said it disagreed with the US decision to do so.
The Russian government said it feared the embassy move would increase tensions across the Middle East.
But Guatemala, which received support from Israel in its counter-insurgency campaigns in the 1980s, plans to open an embassy in Jerusalem on Wednesday. Paraguay intends to follow suit later this month.
Get Breaking news, live coverage, and Latest News from India and around the world on NDTV.com. Catch all the Live TV action on NDTV 24x7 and NDTV India. Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.