The paper aims at presenting the controversy which arose between the governments of the United Kingdom and the USA regarding jurisdiction of the local courts over American nationals who resided in the mandated Palestine. The Mandate for Palestine suspended the application of capitulations, that is treaties which had governed relations between the Sublime Port and some western Powers, to the territory of Palestine, and the provisions of the Palestine Order in Council, 1922 (“the constitution” for Palestine), worked on this assumption. Nonetheless, the USA were not a member state of the League of Nations and therefore not a contracting party to the Mandate for Palestine, and they took the position that their capitulatory rights, including exception of the US nationals from the local criminal jurisdiction, remained intact notwithstanding the coming into force of the Mandate. Though in principle the British government did not contest this opinion and the provisional arrangement was reached between the British authorities and the vice consul of the USA in Jerusalem regarding procedure to be followed in criminal and civil proceedings with American nationals involved, this arrangement was not, in fact, fully honoured by the Palestinian judicial authorities, on the ground that it was not in conformity with the provisions of the Palestine Order in Council. This led to a dispute where it appears that in at least eight cases Palestinian courts assumed jurisdiction over American nationals and the US consulate in each case submitted formal protest. The deadlock was surmounted no sooner than in November 1925, when the UK-USA convention entered into force by which the USA recognized British administration over Palestine in accordance with the provisions of the Mandate.