Jerusalem at the Crossroads of Peace Talks : Israelis say it must stay their capital forever. Palestinians want ‘space’ for their capital.

As much the center of conflict as the city of peace through its long history, Jerusalem is now a key issue in the Arab-Israeli peace negotiations, even to the point that an overall settlement will depend on agreement on Jerusalem’s future.

“There was and there will be a struggle over Jerusalem,” Israeli Prime Minister Yitzhak Rabin said last month in dedicating the new city hall. “We are determined . . . that Jerusalem will remain united, under Israeli sovereignty, and stay the capital of the Jewish people and the state of Israel forever.”

The Palestinians are equally adamant. “What would we have without Jerusalem?” asked Haidar Abdel-Shafi, chief Palestinian delegate to the Washington peace talks. “The Palestinian problem is the heart of the Middle East conflict, and Jerusalem is the heart of the Palestinian problem.”

BACKGROUND: In asserting their rights to Jerusalem, Israelis and Palestinians dispute almost everything about the city--who settled it, who built it, whose roots go deeper into the Judean Hills on which it sits and who loves it more.

For each side, the city symbolizes its religious and national aspirations; for each, it is a political, economic and cultural center of utmost importance.

When the United Nations drew up plans in 1947 to divide British-administered Palestine into a Jewish and an Arab state, both wanted Jerusalem as its capital, and both rejected proposals to share or internationalize the city.

In the fighting that followed Israel’s declaration of independence in May, 1948, Jewish forces held the modern city on the west side, but Arabs took the Old City and most of the east side--and the city was effectively split along the armistice line.

Israel declared Jerusalem its capital and began establishing government ministries in the city; Jordan officially annexed East Jerusalem. But the United States and other Western powers held that Jerusalem’s status remained “an unresolved international issue” and kept their embassies in Tel Aviv.

Israeli troops captured East Jerusalem in their victorious sweep across the whole West Bank in the 1967 Arab-Israeli War, the barbed wire and barricades that had divided the city were torn down and Israel extended its “law, jurisdiction and administration” to the city’s east side.

Today, Jerusalem has a population of 550,000--72% Jews, 28% Arabs in a ratio that has been preserved through the construction of large new Jewish neighborhoods and severe restrictions on Arab building.

KEY ISSUE: Israelis see Jerusalem’s rapid growth in the last two decades as emblematic of the Jewish national rebirth; Palestinians see the Israeli capture of the Old City and Arab neighborhoods of eastern Jerusalem as symbolic of their “dispossession” in the establishment of the Jewish state.

Israelis insist that all Greater Jerusalem remain under Israeli sovereignty as their “eternal capital.” Palestinians say they must have “space” in a united Jerusalem for the capital of the independent Palestinian state they want, and they say the city’s Arab neighborhoods must be part of that state.

OPPOSING FORCES: Rabin declares that, while he is ready to give “land for peace” on the West Bank or the Golan Heights, Jerusalem’s status is not negotiable, and there is a strong Israeli consensus on this. “No, Jerusalem will not be discussed--not now, not ever,” Israeli historian Shmuel Katz wrote in the Jerusalem Post this week.

“The heart of the Palestinian people is in Jerusalem--and nowhere else,” said Hanan Ashrawi, spokeswoman of the Palestinian delegation. “Without it as our capital, there will be no settlement. But our claim is not to Jewish neighborhoods, but those that are and were Arab. Jerusalem we can share. So far, however, Israel does not even agree to discuss it.”

OUTLOOK: Trying to get around the impasse, American mediators are proposing that Jerusalem’s status be discussed only in the negotiations on the final status of the West Bank and Gaza Strip; neither Israel nor the Palestinians has agreed.

Meanwhile, proposals are proliferating for keeping Jerusalem united, yet allowing both Palestinians and Israelis to regard the city as theirs.

One idea is for the decentralization of authority to “borough” councils in each neighborhood; another is for the city’s unified administration elected by Israelis and Palestinians and others to call for placing the Old City under an interfaith council and having Israeli and Palestinian municipalities side by side.

None has won much support. “I cannot see two sovereignties residing in the same city and calling it a united city,” Israeli Foreign Minister Shimon Peres said.

But Hanna Siniora, editor of the East Jerusalem newspaper Al Fajr, warns: “Jerusalem is above all the issue on which a peace agreement depends--it is at the heart of what we Palestinians feel and, we understand, of what the Jews feel too. Jerusalem is the key to peace.”