Jerusalem. When Israel declared independence in 1948 the capital was declared the eternal capital of the Jewish people. However during the War of Independence Transjordan conquered and occupied the eastern portion and annexed it, along with Judea and Samaria. The Transjordan (now renamed Jordan) military razed the Jewish parts of the eastern side, including the Jewish Quarter, the great Hurva synagogue, and every Jewish cemetery within their area. They banished all surviving Jews and besieged Western Jerusalem, ethnically cleansing the east part of the city of Jews for the first time in millenia. Following the 1949 peace Rhodes accords which ended the war, Israel retained Western Jerusalem as its capital, building the Knesset (the Israeli parliament) and other governments buildings there. Per the Rhodes Accords, Jews were supposed to be allowed access to the Western Wall, the site holiest to modern Judaism, to pray. In actuality this was not permitted.
In 1967, during the Six Day War, Israeli troops took East Jerusalem in fierce battles. Israel annexed it and reunited the city. However, since the 1947 partition plan by the UN which originally approved a Jewish state, Jerusalem was supposed to become a neutral zone, mandated by the UN. Nominally for this reason, many countries refuse to acknowledge Jerusalem as the capital of Israel and maintain their embassies in Tel Aviv, the country's financial center, instead. They also refuses to acknowledge the Israeli annexation of East Jerusalem, but since technically according to the UN no parts of the city was supposed to be in either Israeli or Palestinian hands, this has little practical meaning.