I am of two minds on this case. The Jew in me wants Jerusalem recognized as Israel's capital. (In any event, legalities aside, that IS where Israel's government is located). On the other hand, it is pretty clear to me that under the separation of powers, control of passports is purely an executive function, not congressional. The State Department should make these decisions (but that doesn't mean i have to like every decision.) Be that as it may, Jerusalem is the de facto capital. This is implicitly recognized by the U.S. - the U.S. ambassador presents his credentials to Israel's President in Jerusalem, even though them embassy is in Tel Aviv.
http://www.cnn.com/2015/06/08/politics/zivotofsky-supreme-court-jerusalem-passport/index.html