State television said state-sponsored marches were being held in 950 communities across Iran and showed demonstrators carrying banners with slogans such as "Jerusalem is the eternal capital of Palestine" and "Death to America" and "Death to Israel."
Marchers also set fire to a Trump mask and Israeli and U.S. flags, according to pictures on Iranian news websites.
Trump's plan is to encourage investment in the West Bank and Gaza Strip by Arab donor countries before grappling with thorny political issues at the heart of the conflict.
Palestinian officials, angered by Trump's decision in 2017 to recognize Jerusalem as the capital of Israel, have already spurned it, believing it will be heavily biased in favor of Israel. Iran said it would fail.
"No to the deal of the century" read a banner splashed across the news screen on state TV, which also showed a Quds Day march in neighboring Iraq's capital Baghdad, where thousands of fighters from powerful Shi'ite militias took to the streets.
"Al-Quds day in Baghdad, in other Iraqi provinces, and across the world, expresses rejection of the 'deal of the century', which is being planned by Trump in order to dissolve the Palestinian cause in (his) own way," said Mo'een al-Kathem, a member of Baghdad's provincial council.
The Iraqi militiamen marched in combat fatigues but were unarmed and did not showcase military vehicles and heavy weaponry, a contrast to previous years when they used the parade as an opportunity to showcase combat prowess.
Numbers in Iraq were consistent with annual turnout but there was a noted absence of influential militia leaders who usually mark the day by delivering fiery speeches critical of Israel and expressing gratitude to Iran for its backing.
Quds Day was launched by Ayatollah Ruhollah Khomeini, the leader of Iran's 1979 Islamic revolution, and is held on the last Friday of the Muslim fasting month of Ramadan.
Opposition to Israel is a cornerstone of Shi'ite-led Iran. It backs Palestinian and Lebanese Islamist militant groups opposed to peace with Israel, which Tehran refuses to recognize.
In northwestern Kurdistan province, where rebel groups have been active for decades, police said they arrested three armed militants and foiled a planned attack on marchers in the provincial capital Sanandaj, state broadcaster IRIB reported.
BAHRAIN CONFERENCE
Iraq's most powerful Shi'ite militias are backed and trained by Iran. They helped retake swathes of land captured by Islamic State alongside Iraqi government forces supported by a U.S.-led international coalition.
Baghdad has sought to calm rising tensions between its two main allies, fearing an outbreak of war would damage Iraq's fragile internal security. Militia leaders have vast political influence and have been striking a less inflammatory tone over the past few weeks.
Iran's Supreme Leader Ayatollah Ali Khamenei has said the Trump plan will fail. President Hassan Rouhani said after joining the march on Friday: "Undoubtedly, the deal of the century will become the bankruptcy of the century and will not lead anywhere," IRNA reported.
Speakers at rallies in Iran vowed that Palestinians would defeat Israel.
"The strategy of Lebanon's Hezbollah, Islamic Jihad, and Hamas has led to Israel's successive defeats in recent years and if Israel makes the smallest move today it faces a barrage of Palestinian missiles," Revolutionary Guards spokesman Ramezan Sharif was quoted as saying by Tasnim news agency.
Palestinian militant groups Hamas and Islamic Jihad fired around 690 rockets towards Israel during a surge of deadly violence in the Gaza Strip and southern Israel that lasted about two days in early May, the Israeli military said.
Speaking after the march in Tehran, parliament speaker Ali Larijani criticized U.S.-allied Gulf Arab states that have expressed support for Trump's plan.
"The Saudis, Emiratis and Bahrainis have given their money and are losing their good name ... for a phony American plan," Larijani said in remarks carried live by state TV.
Saudi Arabia and the UAE have said they will participate in a planned Bahrain conference to encourage investment in the Palestinian territories by Arab countries as part of the plan.
In Yemen's capital Sanaa, which is held by the Iran-alligned Houthi movement and their northern stronghold Saada, "large crowds" marched to mark Quds Day, the group's Al Masirah TV said on Twitter.Israel, the United States and its chief Sunni Arab ally Saudi Arabia accuse Iran of fomenting tension in the Middle East and of sponsoring terrorism. Tehran denies this.