In 1949, the UN was set to debate what was to happen with Jerusalem. The 1947 partition plan envisioned Jerusalem as an international city, but by 1949 Israel had taken the western part and Transjordan the eastern section - which includes all the holy sites, including the Al Aqsa mosque, regarded as the third holiest site in Islam.
It is therefore interesting that the Arab world (except Transjordan) wanted the UN in 1949 to push again for an internationalization for Jerusalem, as well as the other surrounding areas like Bethlehem.
From the November 20, 1949 Palestine Post (click to enlarge):
The Arab plan included provisions for exclusive and permanent UN control over the city, for expelling any residents (meaning Jews) who moved into the city after November 2, 1947, for stopping all immigration to Jerusalem and for creating a corridor between Jaffa and Jerusalem (cutting Israel in half.)
Now, Arabs had control over the Old City and surrounding areas. They controlled all the holy sites. They had expelled all Jews from the Old City and from across the Green Line.
Why would they want to give up their control of the holy places and give it to the UN?
The reason is obvious. They couldn't stand any Jews controlling any part of Jerusalem, even the western part (or Palestine itself, for that matter.) The plan would have expelled thousands of Jews from the western part of the city and would have ended Jewish sovereignty over it - the relatively new part of the city that was built by Jews to begin with.
The Arab hatred of Jews was far greater than their supposed love of Jerusalem. The chance to decrease the number of Jews in the western part of the city, and to remove Jewish rule over it, was worth more to them than Muslim sovereignty over the Al Aqsa Mosque!
Since 1967, the Arab world has made a huge propaganda effort to convince the West that they must control their holy places and how supremely important Jerusalem is to Muslims. Yet only 18 short years beforehand, they wanted to give it all away.
Arab motivation may be a bit less obvious nowadays, but it has not changed. From their perspective, it is not "occupation" - it is Jews controlling land they consider theirs by right. And just as they tried to use the Jaffa corridor and this Jerusalem plan to slowly slice away Jewish control then, so they are using excuses of "occupation" and "settlements" - issues that are given an importance far disproportionate to reality - as reasons to take control of land away from Jews today. And just as the Green Line was unimportant to them then, so is it just a temporary goal for them now.