Both Palestinians and Israelis should have sovereignty over the holy city.
Jeddah, Saudi Arabia
There will never be a durable peace in the Middle East without a settlement of the Israeli-Palestinian conflict that is acceptable to most Israelis and to most Palestinians. There will also never be a lasting settlement of the Israeli-Palestinian conflict without a solution to the status of Jerusalem acceptable to most Israelis and to most Palestinians.
While it is widely assumed that no such solution exists, there is one that has a real possibility of being acceptable.
When Israelis and Palestinians speak about Jerusalem, they are not simply establishing negotiating positions. Jerusalem commands too tight a grip on hearts and minds. If one accepts that no Israeli government could ever accept a redivision of Jerusalem and that no Palestinian leadership could ever accept a permanent-status solution that gave a future Palestinian state no share of sovereignty in Jerusalem, then only one solution is conceivable: joint sovereignty over an undivided city.
In the context of a two-state solution, Jerusalem could form an undivided part of both states, constitute the capital of both states, and be administered by local district councils, to which as many aspects of municipal governance as possible would be devolved, and an umbrella municipal council, which would coordinate those major matters that can only be dealt with efficiently at a citywide level.
In the proper terminology of international law, Jerusalem would be a "condominium" of Israel and the Palestinian state.
Condominiums, while rare, are not without precedent. For half a century prior to its independence in 1956, Sudan was a condominium of Britain and Egypt. For more than 70 years, the Pacific nation of Vanuatu (formerly the New Hebrides Condominium) was under the joint, undivided sovereignty of Britain and France. In 1999, the arbitrator appointed by the International Court of Justice ruled that the contested Bosnian municipality of Brčko should be a condominium shared by Bosnia's Serb Republic and the Muslim-Croat federation.