Blogs are great because you can do crazy things on them; like suggesting a solution for how Palestinians (from an as-yet non-existent Palestinian (or West Bank) state) and Israelis could share Jerusalem, allowing it serve as the capital for both countries. I like to focus on structure. The UN wished for Jerusalem to be an international zone administered by the UN itself (see General Assembly resolution 181). Funny, right? At the other extreme is just dividing the city in half. Considering the holy sites that are scattered around the city and are important to both sides and to other communities, that seems a terrible compromise. How about an essentially autonomous city-state partially influenced by the governments of Israel and Palestine, but designed to cater above all to the interests of Jerusalem itself?
It sounds crazy, I know. But it seems to me that the only way the two sides could co-exist in the Holy City is if those who live there are responsible for running it themselves. The only way the two sides would allow that, though, is if they had assurances that demographic changes, for example, wouldn't trample their interests there.
Here's how my little idea would look: Those who have had their main residence in Jerusalem for at least one year and are citizens of either Israel or Palestine would be eligible to vote in Jerusalem elections. Israelis would also be able to vote as usual in their own governments' elections, as would Palestinians. Jerusalem would have a mayor-governor elected by popular vote (using a run-off if necessary). This would hopefully make the mayor-governor a centrist character.
The legislature would need to be bicameral: A lower house would be elected using proportional representation of political parties. Any party getting at least 5% of the vote would be eligible for one of the 20 seats in this house. Eight candidates for the upper house would be appointed 50/50 by the governments of Israel and Palestine. The electorate would then select their favorite four of these to become the actual members of the upper house. This would allow those governments to rest assured that no laws would be passed in Jerusalem that would scare them (like changing voting laws or the constitution to one side's advantage). It also means that Palestinians would have the ability to vote on which Israeli-nominated candidates they liked and vice versa, somewhat reducing the likelihood of later gridlock and encouraging moderate candidates (much like the idea behind an open primary election as is being tried in Oregon and California).
Sound like a recipe for gridlock? Well, it might very well be, but the only way forward would be for the sides to find compromises. The way the system is designed, it should help to encourage moderates and discourage extremes while giving the two governments an emergency stop button if necessary. I don't see any way any of these facets could be changed.
Now on to the details: Jerusalem would be a semi-sovereign city-state. It would have no citizens, however, only residents. Furthermore, only its residents who were citizens of either Israel or Palestine would have the right to vote. There would be no checkpoints within the city, only on either side when leaving (though the Jerusalem police could put up entry checkpoints on either side, too, if it felt that necessary). If arriving by plane, for example, a visitor would have to have a valid visa for either Israel or Palestine. The statelet would have its own constitution, courts, and administration. People within Jerusalem would be subject to Jerusalem's laws, not those of either Israel or Palestine (though the two "parent" countries would obviously have some influence on laws passed there).
On to money: It's important to avoid coercion through government grants, so Jerusalem would have to have its own system of taxation. Residents would be exempt from income taxes in Israel and Palestine and subject to Jerusalem taxes instead. The only areas where Jerusalem would not be sovereign would be in foreign policy, trade policy, military, and on the grounds of the quarters of the two governments, who would both call Jerusalem their home.
Anything going into or out of Jerusalem via Israel would be subject to Israeli law, anything via Palestine to Palestinian law. This would likely make Jerusalem a competitive place alive with commerce, as customers and businesses could choose the best laws from the two countries as far as trade was concerned. Jerusalem could not make laws governing trade, as this would be the job of Israel and Palestine. It would likely have to share the Israeli and Palestinian currencies. People would have to get used to dealing with both. One might win out, however, as the government could decide freely which currency it would like to tax and spend in, giving one a competitive advantage. All these sorts of things could simply be left to fall into place.
This city would likely be a vibrant place, but also a wild one. Despite laws forbidding it, I can only imagine it would be teeming with intelligence agents from both sides and likely abroad as well (think Cold-War West Berlin). Years (or centuries, depending on how you count) of sectarian tensions would be unlikely to disappear over night. It would thus be important that the police and courts were appointed by the mayor-governor and approved by the upper chamber, ensuring that police actions were balanced between Israelis and Palestinians.
If sharing is possible (and that's an admittedly big "if"), it is only within a framework that promotes compromise while safeguarding core concerns. This is my attempt to suggest one.
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