Under Netanyahu, Jerusalem would have never been an acceptable trade for a two state solution. He mentioned it time and again, and to ensure his position, he is now constructing thousands of settlements to make it impossible to divide the city. This is actually a very good action for the two state solution, since it enables Palestinians To give them a sense of reality: 1) Either they accept the fact Jerusalem will never be recognized as their capital and seek to create their state without it, WITH Israel's recognition 2) or they keep making unilateral actions, which will slowly force them into smaller and smaller communities, making life so tough for them, they will be forced to accept any land they have as their state or simply immigrate to another country like so many are doing already.
Bomb in Lebanon targets bus heading to Syria, no casualties (Reuters)
from the article: Israel approves plan for 2,600 new homes in East Jerusalem