Although the Jerusalem Embassy Act of 1995 states that the U.S. should recognize Jerusalem as the capital of Israel, all U.S. presidents have understood the folly of doing so.
It is going to be hard for the Obama admission to respond to the categorical Netanyahu response without addressing the status of the eastern section of city, which, of course, includes the Old City, where sites sacred to Jews, Christians and Muslims are found. Israel's approach has often been, as it was in Netanyahu's statement of today, to declare that Jerusalem is not negotiable and Israel build what it pleases. If the Obama administration is silent on Jerusalem, it will be making a major mistake in terms of resuscitating U.S. credibility as an honest broker.
Added: American Jewish leaders share Obama's perspective on the Israel's settlements. As a result, outside of fringe groups such as the ZOA, Netanyahu has limited options for mobilizing counter-pressure on the Obama administration.
“There’s a message here for Israel,” said Jeremy Ben-Ami, executive director of the dovish group J Street and one of the White House meeting participants. “The message is that there is no court of appeals, that the American Jewish community and the president share the same interest.”