European Union ministers have called for Jerusalem to serve as the capital of both Israel and a future Palestinian state as part of a negotiated peace.
The foreign ministers dropped an earlier reference stating explicitly that East Jerusalem should be the capital of a Palestinian state.
Palestinians welcomed the statement. However, Israel says it contains "nothing new".
The BBC reports Jerusalem's status is one of the most sensitive and complex issues in the Israeli-Palestinian conflict.
Israel captured the West Bank in 1967. It currently claims sovereignty over the entire city, and claims it as its capital.
Israeli claims of sovereignty over Jerusalem are not recognised internationally, and East Jerusalem is considered to be occupied territory.
Palestinians hope to establish the capital of their future state in East Jerusalem.
The ministers say a recent Israeli decision to restrict the growth of settlements in the occupied West Bank - though not including East Jerusalem - is "a first step in the right direction".
But they also stress that "settlements, the separation barrier where built on occupied land, demolition of homes and evictions are illegal under international law, constitute an obstacle to peace and threaten to make a two-state solution impossible".
The Palestinian Authority has demanded that all construction is halted before it will again attend peace talks.