It is important to understand that the official position of the United States is still stuck in 1947. In other words, though this isn’t often mentioned and State Department spokespeople don’t even seem to understand that, American policy is that Jerusalem should be under international control.
This fact is confused by the 1967 issue. In 1967, after Jordan entered the war, Israel captured the eastern part of the city. While Israel then annexed that section and reunited the city, this was not accepted internationally. Almost all Israeli government buildings remain in the western, pre-1967 Israel part.
When Israel and the PLO signed the “Oslo agreement” in 1993, the future status of east Jerusalem was one of the issues left for a bilateral agreement. This is the main point that State Department spokespeople and U.S. officials cling to.
The only relevant mention of Jerusalem in the agreement occurs in Article Five, Paragraph 3:
It is understood that these negotiations shall cover remaining issues, including: Jerusalem, refugees, settlements, security arrangements, borders, relations and cooperation with other neighbors, and other issues of common interest.
The United States has repeatedly, though not always publicly, recognized that Israel makes a sharp distinction between Jerusalem and the West Bank (or, to use Israeli nomenclature, Judea and Samaria).
For example, in 2009 the Obama administration made a secret agreement with Israel to distinguish between construction on West Bank settlements and construction in east Jerusalem (or in other places, empty in 1967, where Israel has extended the city borders on the north, south, and west sides of the city). This was part of Israel’s agreement to freeze construction for a nine-month period to see if the Palestinian Authority wanted to negotiate. (It didn’t.) Vice President Joe Biden broke that agreement when he threw a tantrum about a low-level Israeli zoning board approving some future construction in the city. But that doesn’t change the fact that the U.S. government has accepted a distinction.
Now let me be very pragmatic here. As I noted above, it is true that the Oslo agreement said that the future status of Jerusalem will be decided in negotiations. Therefore, the United States has a legitimate rationale for not recognizing a united Jerusalem as the capital of Israel.
In the Camp David negotiations of 2000 and the Clinton plan later that year, in proposals approved by Israel’s government, Israel indicated its willingness to give up most of east Jerusalem as part of a full peace agreement. Since the Palestinian Authority rejected that offer, it is not binding.