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First, the illegality of the Israeli settlements under international is bright line stuff now. The World Court recently issued an advisory opinion, on the question of the security barrier, which in the course of concluding jurisdiction existed, affirmed that the Geneva Accords apply to the areas over-run in '67. Regardless of one's views of their conclusions concerning how these applied to the case of the security barrier, the conclusion the Geneva rules apply to the territory in the first place is unassailable, and constitutes controlling legal precent in the matter. No future tribunal can be expected to rule otherwise on this question. The Geneva Accords apply. They explicitly bar the settlement of a portion of an occupying power's population on land it holds under military occupation. It really is that flat, and no amount of ink, however ingeniously spilled, can change it.
Jerusalem is a difficult nut: it has symbolic value, and when symbol takes over from actuality, sense and reason decamp for more congenial climes. The Armistice Line left most of the city in Israeli hands, and its Old Quarter in the hands of Trans-Jordan; events of '67 put this into Israeli hands. Jews, and by extension the Jewish state of Israel, view Jerusalem as their spiritual capital; the Arab of Palestine view Jerusalem as their crown jewel, since it has sacred status within the Moslem faith predominant among them, and of course great sacred to Christians as well. Events during the Mandatory period, and during the period when the Old Quarter was ruled by Jordan, demonstrate adequate reason for Jewish and Israeli fears that their most sacred site cannot be trusted to administration by thier Moslem neighbors. Sovereignty over this will not be relenquished by Israel, under any circumstance, or any pressure short of destruction in absolute military defeat. Moslem feelings over the al' Aqsa mosque are of similar strength. Any solution to Jerusalem must satisfy both feelings. It is worth recalling the original United Nations proposal was for an international administration of Jerusalem, awarding to neither the Arabs or the Jews.
By 'co-dominion' is meant a joint authority ruling the Old Quarter, a small board composed of representatives of both governments, in equal numbers, so that they would have to choose between getting along or letting a thing both value highly go to ruin. The arrangement would allow both sides to claim sovereignty in the Old Quarter, and even allow either or both to employ it as their capital if they chose. Sovereignty over the principal 'holy sites' would be single, held by the respective country, and easements from the chief territory of each to same be specified and irrevocable. Shoud either side wish to establish its capital in the area, the same arrangements would apply for those governmental structures.
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