The status of Jerusalem is one of the most contentious issues of the Israeli-Palestinian conflict. The Palestinians want the eastern portion of Jerusalem as the capital of their promised state, but Israel, after the 1967 Six-Day War, claims that all of Jerusalem has been annexed into the Israeli state and wants the entire city to be its capital.
Because of the ongoing conflict between Israel and Palestine, the United States and most of the international community do not formally recognize Jerusalem as Israel's capital. All foreign embassies are located in Tel Aviv with consular representation in Jerusalem.
Republican presidential hopeful Mitt Romney told CNN today that he would recognize Jerusalem as the capital and, with consultation with Israel, would move the U.S. embassy there.
"A nation has the capacity to chose its own capital city and Jerusalem is Israel's capital," he told CNN's Wolf Blitzer. "I think it's long been the policy of our country to ultimately have our embassy in the nation's capital in Jerusalem. The decision to actually make the move is one, as president, I would want to take in consultation with the leadership of the government which exists at that time. And so I would follow the same policy we have in the past — our embassy would be in the capital but the timing of that is something I'd want to work out with the government of Israel."
AFP News points out that in 1995, the US Congress passed the "Jerusalem Embassy Act" that recognized Jerusalem as Israel's capital and stated that the US embassy should be moved there. However, the Act has an inbuilt waiver which, according to AFP, has "allowed the president to temporarily postpone the move on grounds of national security." The waiver has been invoked by successive US presidents, from Bill Clinton, George W. Bush and Barak Obama, which, according to AFP, means the law has never taken effect.
As to Israel's borders, President Obama said last year that Israel must return to the 1967 borders, inciting anger from Christian conservatives. His predecessor, George W. Bush, had said "the borders should be negotiated based on the armistice lines of 1949 to reflect current realities."