Would be wonderful to see a President recognize Israel’s choice Jerusalem as their capitol. Not going to happen with either Obama or Romney though.
The basic problem is that no rational government wants to have its embassy in an area that's subject to any kind of dispute. The whole process of establishing and maintaining an embassy is predicated on the understanding that the "host" country in which the embassy is located -- and the area within the country where it is located -- are stable enough for the "visitor" country to have a long-term presence.
One basic problem is that the legal status of Jerusalem will probably never be solidified as long as the Palestinian Authority maintains a claim on East Jerusalem as its own capital.