It is a story which goes back 70 years to the UN partition plan in support of the British Mandate of Palestine into two states, a Jewish state, and an Arab state. The UN partition plan left Jerusalem and its surroundings including Bethlehem as a separate territory under some form of UN control. Jewish leadership accepted the plan, and on May 15, 1948, the State of Israel was declared. Meanwhile, the Arab states rejected the plan and, consequentially, armies of five Arab states attacked to destroy the nascent state of Israel.
It was a miracle that Israel was able to defend itself and survived. An armistice ended the hostilities which left Jerusalem divided. Arabs did not form their state. Transjordan occupied the West Bank of the river Jordan and East Jerusalem while Egypt occupied the Gaza Strip. Transjordan changed to Jordan and expelled all Jews from the territories occupied. Israel established its capital in Jerusalem.
By international law, a proposed plan is in force when accepted by all parties involved. The UN Partition Plan of 1947 was never accepted by the Arab side and was replaced by the Armistice of 1949. Only Israel is still subjected as an “occupier” of Jerusalem, its capital.
So far, Israel was the only country in the world with the sovereignty of its capital not recognized. Hopefully, things are changing for the better. Recently, two countries, Guatemala and Paraguay, decided to move their embassies to Jerusalem. In addition, while representatives of the United Kingdom, France, and Germany stayed away from the ceremony to open the U.S. Embassy, representatives of five Eastern European countries did attend the opening ceremony.
Pretty good summary, thank you.