In the 1947 UN partition resolution, the General Assembly recommended that Jerusalem be made a corpus separatum, a political entity under international control, apart from the proposed Jewish and Arab states. This was reaffirmed at the time of the 1949 armistice agreements, but nobody paid attention to it — Jordan annexed the eastern part of Jerusalem, and Israel of course included the western part, which became its capital.
The US did not vote for the corpus separatum resolution in 1949, but nevertheless was not happy with the situation. In 1962, the State Department issued a statement which said, in part,
The United States undertook, however, to give due recognition to the formal acts of the General Assembly and the Trusteeship Council relating to Jerusalem and has since maintained its position that the Holy Places in the Jerusalem area are of international interest to a degree which transcends ordinary considerations of sovereignty.
…the status of Jerusalem is a matter of United Nations concern and no member of the United Nations should take any action to prejudice the United Nations interest in this question. Our objective has been to keep the Jerusalem question an open one and to prevent its being settled solely through the processes of attrition and fait accompli to the exclusion of international interest and an eventual final expression thereof presumably through the United Nations.
I have always suspected that the State Department — many of whose employees were the children of missionaries — simply couldn’t handle the idea of the holy places in the hands of Jews and Muslims. Be that as it may, at some point the position changed — probably with the passage of UNSC resolution 242 in 1967 — so that the status of Jerusalem would be decided by negotiations between the parties concerned, and not by the UN.
The parties, in 1967, were Israel and Jordan. With the Oslo agreements, the status of Jerusalem became a “final status issue” to be negotiated by Israel and the Palestinian Authority. This is today’s official State Department line.
Note that in respect to sovereignty, the State Department has never distinguished between the eastern and western parts. Neither are part of Israel. The 1962 statement explains that
As a consequence of this policy, when the Department learns that a government for the first time is contemplating the establishment of a diplomatic mission in Israel, we inform that government of the historical background of United Nations attitudes toward Jerusalem and express the hope that, in deference to United Nations attitudes, its mission will be established in Tel Aviv, where most other missions are located.
Since the seat of Israel’s government is in western Jerusalem, the only reason to do this is because State believed that Israel is not sovereign in any part of Jerusalem, east or west.
This was reinforced more recently by the case of Menachem Zivotofsky. Zivotofsky was born in Shaare Tzedek hospital in western Jerusalem. His parents requested that his passport read that he was born in “Jerusalem, Israel,” but the State Department refused to issue a passport with this description, despite a law passed by Congress in 2002 directing it to change its policy.
Now, one can argue that the status of eastern Jerusalem is in dispute, but all of Jerusalem? Apparently the US State Department thinks so. Watch spokesperson Victoria Nuland try to wiggle and dance her way out of some expert questioning by AP reporter Matt Lee:
The part in which she will not say whether Jerusalem is the capital of Israel is priceless. Congresswoman Ileana Ros-Lehtinen (R. FL), chairperson of the House Committee on Foreign Affairs, responded “Where does the Administration think Jerusalem is? On Mars?”
But interestingly, in other contexts — like Israel thinking about building apartments in Jerusalem neighborhoods outside of the Green Line — they do seem to be able to make the east/west distinction quite clearly!
Some commentators have pointed out that if “all of Jerusalem is a final status issue” — as reporter Lee cannot get Nuland to deny — then the Palestinian Authority in effect is given a veto power over Israel’s possession of its own capital.