There is no doubt that among all permanent status issues to be resolved regarding the future between Israel and Palestine, the most difficult one by very far is the status of Jerusalem. Emotionally, it is the most loaded issue; politically, it is the most complicated one. From a religious perspective, reaching an agreement between the Jewish and Muslim worlds on the Jerusalem issue seems like "mission impossible."
But pragmatically, this should not be the case. Analyzing today's situation, one can say that Jerusalem is already de facto a divided city, between west and east. Most Arab neighborhoods, such as Jabel Mukaber, Issawiya, Shuafat and Atur, are now cut off by road blocks and the Temple Mount (Haram al-Sharif) is administered by the Jordanian Waqf in coordination with the Palestinian Authority's Ministry of Waqf and Religious Affairs; only Muslims are allowed to pray there. It is also an open secret that PA officials are active both socially and economically in East Jerusalem.
The majority of Israeli public opinion supports giving up control over the East Jerusalem's Palestinian neighborhoods. According to a poll conducted on Oct. 27 by Mina Tzemach for the Israeli Knesset channel, 50% supports transferring the Arab East Jerusalem neighborhoods to the PA, while 41% oppose it. These results stem from developments on the ground, namely those borne out of the conflict, and not following any negotiations. Nevertheless, they show the road to a resolution of the contentious Jerusalem issue; they could actually serve as the basis to such a resolution.
If negotiations are one day resumed, what remains is to turn this de facto situation into a de jure division between two states and to deal with the future arrangements for the Old City and the holy sites. Jerusalem would become Israel's internationally recognized capital, also by all Arab states. (Today, no government recognizes it; not even the US administration.) East Jerusalem would become the internationally recognized Palestinian capital. The Palestinian government offices could be located in one of the Palestinian neighborhoods inside East Jerusalem.
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