When you hear the city's name you can't help but imagine something, think of something. What that may be will certainly vary greatly from person to person, but one thing many of us think of is the massive headache it gives anyone who has any thought about some sort of resolution to the whole Palestine/Israel question.
It needn't be that big of a headache. There are several logical answers to the problem of how to deal with it, but few seem willing to even give them serious thought.
Anyway, what I have below is a long, and I mean long for Scission on a Monday, piece which tells you more about Jerusalem's history and questions, and even some answers, then you have likely run into for a while. It's worth the read whatever your (or my) thoughts. It also demonstrates that it isn't like the Israeli's didn't have a plan (or plans) relating to Jerusalem since the get go.
The following is from New Left Review.
I’ve reached the point that when someone says ‘Jerusalem’ I am very cynical about it. This is a term that has been totally emptied of its content. Today there is no geographic concept called ‘Jerusalem’, and instead I suggest using a new term, ‘Jermudin’, which is the territory stretched from Jericho to Modi’in. Someone decided to rub the hills that have no connection to Jerusalem with holy oil, and today we need to deal with a ‘Jerusalem’ region, which is unmanageable and which is held by force. 
From Canaanites to colonizers
On a roof in the Old City
laundry hanging in the late afternoon sunlight
the white sheet of a woman who is my enemy,
the towel of a man who is my enemy,
to wipe off the sweat of his brow.
In the sky of the Old City
At the other end of the string,
I can’t see
because of the wall.
We have put up many flags,
they have put up many flags.
To make us think that they’re happy
To make them think that we’re happy.
The US considers that the part of Jerusalem that came under the control of Israel in the 1967 War, like all other areas occupied by Israel, is occupied territory and hence subject to the provisions of international law governing the rights and obligations of an occupying Power. 
It placed every remote and newly built suburb well within the boundaries of the ‘eternally unified capital of the Jewish people’, and thus, as far as most Israelis are concerned, away from the negotiation table. What is called Jerusalem, by name, by architecture, and by the use of stone, is placed at the heart of the Israeli consensus. 
Politics and peoples
Do not believe the propaganda . . . the rosy picture Israel tries to show the world, of life in Jerusalem since the 1967 reunification. Israel has treated the Palestinians of Jerusalem terribly. As a matter of policy, it has forced many of them from their homes and stripped them of their land, all the while lying to them and deceiving them and the world about its honourable intentions. 
According to the aim presented by the municipality and adopted by the government, the city needs to keep a ratio of 70 per cent Jews and 30 per cent Arabs. However . . . demographic patterns in the city since 1967 have distanced Jerusalem from this aim. There has not been a 70:30 ratio in Jerusalem since the 1990s and the proportion continues to be violated. 
We said things without meaning them, and we didn’t carry them out. We said over and over that we would equalize the rights of the Arabs to the rights of the Jews. [This was] empty talk . . . Never have we given them a feeling of being equal before the law. They were and remain second and third class citizens . . . For Jewish Jerusalem I did something in the past twenty-five years. For East Jerusalem? Nothing! What did I do? Nothing. Sidewalks? Nothing! Cultural institutions? Not one. Yes, we installed a sewerage system for them and improved their water supply. But do you know why? Do you think it was for their good, for their welfare? Forget it! There were some cases of cholera there, and the Jewish residents were afraid that they would catch it, so we installed a sewerage and water system for cholera prevention. 
Years of neglect damaged the unity of the city in the eyes of the world. When we claim that the city is united but we don’t demonstrate that we know how to deal with all the residents, it hurts us . . . [We need] to work hard and make sure that we deal with all the residents so we actually unite the city much more strongly.