A special policy problem has developed as a result of the United Nations concern with Jerusalem. The Israel Government has proclaimed Jerusalem to be the capital of Israel, an act which, while not specifically prohibited by the United Nations, is in clear violation of the spirit of the special status recommended for the city by the General Assembly. The Department advised the Israel Government against moving its capital to Jerusalem, but without effect.
There is thus created the problem of whether the establishment of the capital in this city should be recognized by moving the United States Embassy, which has remained in Tel Aviv, to Jerusalem. Since the UN General Assembly has reach no definite decision on Jerusalem, consideration should be given to moving the Embassy to Jerusalem after consultation with other appropriate nations.
A difficult factor in the Palestine dispute is that the Arab states regard anything favorable to Israel as being unfavorable to themselves. The Department is endeavoring to convince the Arabs of US impartiality as between them and Israel, and care should be taken in dealing with Israel to avoid giving an impression of favoritism which would be resented by the Arabs.
That's been the issue for 66 years. Arabs have veto power over doing what's right because the right thing might be "resented." Therefore, the Arabs have incentive to keep resenting.
Even though, as the author of this memo observed, the Arabs don't look at the pros and cons. They believe in a zero-sum game. If Israel benefits - they lose. Therefore, anything that benefits Israel will be opposed - and therefore, in the logic of Western diplomats, it must be resisted by them as well.
So for those who claim that "now is not the right time" to move the embassy - that has been the official position of the US Government since 1951.
That excuse seems a little hollow when viewed in perspective.
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The memo has an interesting bit on UNRWA as well:
The United Nations Relief and Works Agency, set up by the General Assembly in 1949 to administer relief and to undertake development projects for the employment of the refugees, has concluded that the only hope of reintegration for any substantial number of these people lies in resettlement in the Arab countries.
But again, the Arabs considered that solution to be something that would help Israel, and therefore it must be opposed.
The result is nearly seven decades of a "refugee" problem - all because Western diplomats are too afraid to confront Arab intransigence that is meant to do only one thing, to hurt Israel, all other considerations be damned.
Only when the world calls these Arab bluffs will there be clarity on how to reach solutions to solve these problems rather than kowtow to vague fears of Arab anger.