Other States don't get to choose where any given State's capital is. Its a non-issue. The only issue is determining the border between Israel and Palestine. Once that is solved, then everyone gets to have a capital where ever they want and can call the place where their capital is Jerusalem or Al Quds or Zombieland or whatever else they want. The issue is where the border is going to be.
I think until that issue is resolved - and who gets to claim Jerusalem - no nation should be putting it's embassy in contested territory nor should they recognize it.
It is not contested territory the arab muslims made certain of that when they invaded and stole the land in 1948. The UN should have went in then and destroyed Jordan as an object lesson to the rest of the arabs