In 1980, Israeli Knesset passed the Jerusalem Law, which states that “Jerusalem, complete and united, is the capital of Israel.” However, United Nations Security Council Resolution 478, adopted by 14 votes to none, with an abstention from the US, declared the law "null and void." No foreign country today has an embassy in Jerusalem.
Although Congress, in 1995, passed a law requiring that the U.S. Embassy be relocated from Tel Aviv to Jerusalem, it allowed the executive branch the option of, every six months, signing a waiver on implementation that law. Since then, every U.S. president starting with Bill Clinton has, twice a year, waived implementation of that law.
The U.S. State Department’s continued recognition of Jerusalem as corpus serparatum has sparked a legal battle with the parents of 12-year-old Menachem Zivotofsky, a U.S. citizen born in Jerusalem whose birth certificate doesn't place the city in Israel. The U.S. Supreme Court is currently considering arguments about whether the State Department should be required to use "Jerusalem, Israel" on documents issued to U.S. citizens born there. Zivotofsky's birth certificate gives his birthplace simply as "Jerusalem."
The status of Jerusalem has proved to be a major stumbling block in efforts to forge a two-state solution to the Israeli-Palestinian conflict. Failure to reach agreement on the issue was a key reason for the failure of the 2000 U.S.-mediated Camp David negotiations between the Palestinian Liberation Organization and Israel mediated by the U.S.
The PLO demanded Palestinian sovereignty over Jerusalem east of the Green Line. Israel proposed giving the Palestinians custodianship over Muslim and Christian holy sites in East Jerusalem, but not sovereignty. The Israeli side also demanded that large settlement blocs in East Jerusalem would remain part of Israel.
Then opposition leader Ariel Sharon rejected even that offer by Israel's government, and took a large security contingent on a walking tour of the Temple Mount — also the precincts of the Islamic holy sites — triggering Palestinian protests that escalated into the Second Intifada.