President Clinton last Friday blocked the embassy move by invoking his authority to waive the law, based on the "national security" interests of the United States. Clinton refused to relocate the embassy, arguing that such a step would put at risk "a successful conclusion to the Middle East peace process."
Since Israel reunified Jerusalem after the 1967 Six-Day War, American Jews and their allies in Congress have called for the embassy move to bolster Israel's claims to the city.
Since the Israeli-Palestinian peace process began in 1993, the U.S. administration has maintained that the embassy should not move until the status of Jerusalem is determined in peace negotiations.
The congressional effort to move the embassy peaked in 1995, when Congress passed a law, the Jerusalem Embassy Act, that imposed financial sanctions on the U.S. administration's foreign policy budget if the embassy was not moved by May 31 of this year.
Clinton's action last week waives those sanctions for six months. And while some members of Congress vow to press forward with legislation that takes away Clinton's authority to further delay the move, others express satisfaction with compromise steps by the administration to enhance Jerusalem's status in other ways.
Jewish groups had mixed reactions to the waiver.
"We're disappointed -- to put it mildly," Howard Kohr, executive director of the American Israel Public Affairs Committee, said of Clinton's long-expected decision. "I am confident the embassy is going to wind up in Jerusalem. I am confident the United States will recognize Jerusalem as Israel's capital. When? That's the question."
But the Reform movement said there are "understandable reasons not to force a decision on moving the embassy at this precise moment."
"This is about when, not about whether to move the embassy," said a statement by the four groups that constitute that movement.
Americans for Peace Now praised Clinton's waiver, saying, "If the relocation had gone forward, it would have poisoned the environment on the eve of final-status negotiations and compromised America's position as a mediator in the peace talks."
Many Jewish activists believe that the embassy will not move until Israel reaches an agreement with the Palestinian Authority, which claims the eastern half of the city as the capital of a future state.
"Obviously, if there is a final-status agreement, that will pave the way for immediate implementation," said Malcolm Hoenlein, executive vice chairman of the Conference of Presidents of Major American Jewish Organizations.
Publicly, activists continue to call for the immediate implementation of the law, which, in addition to requiring the embassy move, stipulates that the United States "should" recognize a united Jerusalem as Israel's capital.
But, privately, Hoenlein and others have led negotiations to compromise with the Clinton administration on interim steps to help solidify Israel's claim to the city. One such compromise has led the United States to quietly expand its diplomatic presence in Jerusalem, where the United States has maintained only a consulate in the eastern part of the city.
Until recently, the U.S. ambassador to Israel maintained a suite of offices at a Jerusalem hotel. Last year, the embassy took a larger space in condominiums at Jerusalem's Hilton Hotel, where the level of public activities has increased and official U.S. functions have taken place.
Despite his continued opposition to moving the embassy, the president signaled his willingness to discuss proposals to further expand and publicize the ambassador's activities in Jerusalem.
In a carefully negotiated exchange of letters between Clinton and Sen. Daniel Patrick Moynihan, D-N.Y., Clinton wrote, "Your ideas are thoughtful, constructive and can serve as a useful basis for discussion and for possible future action."
But such nuanced approaches have not satisfied many critics on Capitol Hill.
"It is deplorable that the administration has not fulfilled the law and has not acted in good faith to move the American Embassy from Tel Aviv to Jerusalem," said Sen. Jon Kyl, R-Ariz.
Kyl, one of the most outspoken opponents of Clinton's failure to implement the law, is working on legislation that would, in effect, take away the presidential waiver.
"There will be legislative action," said Douglas Feith, a Washington attorney who is a close adviser to Kyl on foreign policy issues. A new bill is necessary to remedy the "scofflaw behavior of the president," he said.
Israel's outgoing government also wants to see the embassy moved.
"Israel regrets that the transfer of the U.S. Embassy to its historic capital Jerusalem was delayed once again," said Zalman Shoval, Israel's ambassador to the United States.
Shoval said in a statement that he hopes "this would be the last postponement."
Israel's Prime Minister-elect, Ehud Barak, has taken no position on the legislation.
For Moynihan, the key now is to avoid a fight on Jerusalem.
"The last thing we need is a divisive battle in Washington over Jerusalem, that will suggest to" the Palestinians that American support for a united Jerusalem is wavering, said David Luchins, a senior Moynihan aide.
With AIPAC and the American government preparing for a visit to Washington next month by Barak, some of Barak's supporters want to see the embassy issue placed on the back burner.
Pressing the issue now is "disingenuous and not helpful to the Barak government," said Seymour Reich, former chairman of the Conference of Presidents. "Whether we like it or not, Jerusalem is an issue to be discussed [at the peace table]."