Jerusalem was a divided city from 1949 to 1967. Following Israel's War of Independence, the Hashemite Kingdom of Jordan annexed the east (and north and south) and the State of Israel annexed the western part of the city, located at the end of a corridor that linked it to mainland Israel and kept it alive as a frontier town and capital of the Jewish state. This was an ideal arrangement neither for the Palestinians, who, under Jordanian rule, were reduced to provincial status if they weren't refugees, nor for the Israelis, who were banished from the traditional Jewish quarter and denied access to the holy site of the Western Wall.
In June 1967, the opportunity offered itself to the Israeli cabinet to use the pretext of a preemptive war to change the status quo in Jerusalem. As a result, the former Palestinian residents of Jerusalem, with a living memory of desires for independence stirred first under the Ottomans and later under the British (and stifled by the Jordanians), found themselves in a weird new situation: legally severed from the remainder of the West Bank (which remained under military occupation) but geo-physically, economically, and culturally the center of Palestinian life, East Jerusalem was subject to measures of Israelization and Judaization through any number of measures large and small. (Moshe Amirav describes the Israeli policy goals with admirable clarity in his book, The Jerusalem Syndrome.) As many have noted, these policies failed: Jerusalem's Arab population remained linked to the West Bank; the PLO (even before it was accepted by the Israeli establishment as a potential partner for peace) was active in Jerusalem; Jerusalem's Arabs never accepted the Israeli political system as their own; demographically speaking, the ratio of Arab to Jewish residents has been increasing; in short: East Jerusalem has remained a predominantly Arab, Christian and Muslim city with strong ties to the West Bank and the Palestinian diaspora.
In connection with the recent resumption of peace talks brokered by the indefatigable John Kerry, I have read statements by representatives of Americans for Peace Now that emphasized that East Jerusalem should be the capital of any future Palestinian state. It is of course not unthinkable not to have East Jerusalem as part of such a state. One can easily imagine a Palestinian state that excludes a certain territory as long as there is sufficient territory elsewhere to sustain a state. One can also imagine a Jewish state without Jerusalem, in fact such a state was imagined and accepted by the Zionist movement when Israel was founded in 1948. To accept the UN Partition Plan of 1947, as the Zionists did, meant to accept the partition of historical Palestine (meaning Cis-Jordan, as defined on the British map of 1922), excluding Jerusalem and Bethlehem, which the UN plan designated as a corpus separatum to be placed under international supervision. This could have worked then, but it is no longer on the agenda. What is on the agenda is the idea of sharing Jerusalem, of making it the location of two capitals, or rather of having two governmental clusters (buildings, authorities, institutions) located in close proximity and within the vicinity of what is now the municipality of Jerusalem, a city with boundaries created by post-June 1967 Israeli urban planning informed by one-sided nationalistic goals.
The Geneva Accords and other draft agreements have spelled out the specifics of shared sovereignty. This would entail maintaining free access to holy places and public order, while providing equitable resources and services to all residents of this ever more sprawling urban cluster. What is missing at present is the political will to make this work. Jerusalem's heightened meaning to both sides prevents the political establishments on both sides to imagine how this city could be shared. It's like trying to imagine sharing someone beloved with another lover. Perhaps the idea of an international regime wasn't so bad in the first place. Without such a regime, without an honest broker, without an equitable legal framework and someone neutral to enforce it, it may just be too difficult to imagine a shared Jerusalem (which explains the ubiquitous nostalgia for the days of empire).