The Israeli/Palestinian conflict, religious differences aside, is rooted in a mistaken notion held by many people in the modern world. A preponderant number of people have the fixed idea that a thing can only have one owner, whether a private individual or the State. This has, in part, accounted for the rise and acceptance of both capitalism and socialism, systems that concentrate ownership of the means of production in as few hands as possible, usually in the name of "efficiency." This results in a form of economic totalitarianism.
Unfortunately, all forms of totalitarianism (while they occasionally start off as more or less efficient) quickly become the most inefficient of social systems. Concentrated control of business or politics is by its very nature conflict-ridden, pitting individuals and groups against each other, often with the sole aim of maintaining the current power elite in its privileged position. Dividium et imperium ("divide and conquer") is an effective, if grossly inefficient and contra-human path to power, twisting the whole concept of personal power from the legitimate and necessary control over one's own life, to controlling the lives of others. Totalitarianism is directly contrary to the nature of the human person, each individual having a dignity and sovereignty that transcends mere political or economic expedience.
The idea that one group, and one group only must have possession or title to a specific piece of real estate is contradicted both by human nature and actual experience. The corporate form of organization, while often stigmatized as contrary to human nature or beyond human scale, is actually an example of humanity's inherent political nature in action. The corporation allows many people to participate in the ownership or operation of a single thing. When the full rights of private property are protected and passed through to the shareholders of a corporation, the owners (whether minority or majority) are "connected" to the thing owned in the closest manner possible within a society regulated by a system of just laws.
Thus, the corporate form has inherent within it the capacity to satisfy competing and equal claims on the same thing, whether that be a business or a political entity. The corporation, after all, was only applied to business relatively late in the game. Towns and cities were incorporated (given the status of "persons") long before anyone thought to incorporate a business. It was and remains unnecessary to split up a business or a political entity simply because different groups have equal but opposing claims. The ownership, rather than the thing, can be divided equitably, with each individual in each group exercising his or her natural right to control his or her own life within the framework of the common good of all.
Rather than divide Jerusalem between Israelis and Palestinians, then, the city can be the nucleus of a new form of nation-state that has the capacity to satisfy all competing claims. The foundation of the new State would be economic (and thus political) empowerment of the individual, whether Muslim, Christian, or Jew (or anyone else), a truly "free city," recognized as a sovereign State of its own, but with a significant difference.
The most obvious difference would be the rejection of artificial and disproved false assumptions of "scarcity," a term often misunderstood and incorrectly applied. Assumptions of scarcity (actually "insufficiency" would be a more accurate word) can be overcome if the residents of Jerusalem work together within a justice-driven, free enterprise system to create new wealth that can be traded throughout the world. Ownership and thus profits would be shared more equitably and naturally through the rights of private property.
This would change the orientation from trying to be the sole owner of a small bit of limited land, to becoming an equal owner, with a clearly-defined private property stake, in the industries and profitable enterprises built on the land. Each resident would receive at birth or establishment of permanent residence a single, non-transferable share representing a defined ownership stake in the land, natural resources, and infrastructure of the city, the sort of thing typically owned by government or monopolist private business. Whatever profits generated from leasing the land and so forth would, after being used to meet legitimate costs of government, be divided equally among all citizens as a dividend.
Further, by participating in the ownership of industries and businesses, people would be empowered to gain income not only by selling their labor for wages, but by receiving dividends based on their relative share of ownership of the profit-making enterprises. The possibilities of this "industrial frontier," unlike the land frontier, are (for all practical purposes) unlimited.
As the philosopher-design scientist R. Buckminster Fuller pointed out, creative energy can be channeled into what he called "ephemeralization," the process of doing-more-with-less. This entails the continuing re-design of existing technologies, structures, and even social "tools" like money, tax systems and global corporations and financial institutions.
By introducing the world's most sophisticated technologies (particularly in energy and food production) and redesigning methods of participatory ownership, Arab and Jewish residents can transcend their competing exclusive claims to the Holy Land. They can complement each other's existing strength's and potentials: Jewish settlement experience and advanced energy and agricultural technologies, Arab financing, and Palestinian self-assertion and drive.
Such an approach has been developed in much greater detail than given here, and merits more study by politicians and statesmen. Called "the Abraham Federation," it presents a definite possibility for peace in the Middle East by delivering justice instead of conflict to all.