A decision by Donald Trump this Thursday could prove fateful for the immediate future of Jerusalem, the wider Israeli-Palestinian conflict and the region.

He must decide whether to renew a presidential waiver, signed by his predecessor, Barack Obama, that expires on June 1. The six-month waiver delays implementing a law passed by Congress in 1995 that requires the US to recognise occupied Jerusalem as Israel’s capital and relocate its embassy there from Tel Aviv.

It is a law every president for the past 22 years has baulked at. It would pre-empt the Oslo accords and negate Washington’s assumed role as “honest broker”. Carrying out Congress’s wish would deny the Palestinians East Jerusalem, the only credible capital of a future Palestinian state.

But equally significantly, the law would recognise Israel’s efforts to claim sovereignty over the Old City’s holy places, especially the incendiary site of Al Aqsa mosque. That could provoke a conflagration both locally, among Palestinians, and more generally in the Middle East.

Mr Trump’s key advisers are reported to be bitterly divided. Some, such as secretary of state Rex Tillerson, warn that, if the president fails to approve the deferral, his claims to be crafting the “ultimate deal” to bring peace to the region will be doomed from the outset.

Israeli prime minister Benjamin Netanyahu and his allies, including in the US Congress, are doing their best to pressure Mr Trump in the opposite direction.

On Sunday, Mr Netanyahu staged a provocative stunt, holding his weekly cabinet meeting in a tunnel under Al Aqsa mosque compound to announce measures to bring millions more Jewish visitors to the occupied Old City, including a new cable car to the edge of the mosque.

It was Mr Netanyahu’s decision to open the Western Wall Tunnel in 1996, when he first became prime minister, that brought the Oslo process into almost terminal crisis at an early stage. Three days of clashes killed more than 100 Palestinians and 17 Israeli soldiers.

Next Tuesday, meanwhile, the US Congress and Israel’s parliament in Jerusalem are due to celebrate the 50th anniversary of Israel’s illegal occupation of the city in a ceremony conducted via video link.

The Jerusalem Post reported on Monday that either Mr Trump or vice-president Mike Pence are due to participate, in what could be interpreted as the first tacit recognition by the White House of Jerusalem as Israel’s capital.

That would be a continuation of Mr Trump’s break with official US policy towards Jerusalem during his visit to the region last week. He became the first sitting president to visit the Jewish prayer plaza at the Western Wall, below Al Aqsa. It was unclear whether his advisers had explained that where he stood had been a Palestinian neighbourhood 50 years ago, before it was ethnically cleansed.

Mr Trump stuffed a note into the wall, in what observers hoped was a plea for divine help in solving the Israeli-Palestinian conflict.

But the Western Wall visit was more probably an effort to placate his core supporters. Christian evangelicals paid for dozens of billboards across Jerusalem reminding Mr Trump that he won the election only because of their votes – and that they expect the US embassy to be moved to Jerusalem.

The day after Mr Trump’s departure, Mr Netanyahu exploited the president’s attendance at the wall to further damage prospects for peacemaking. He made a provocative speech to mark “Jerusalem Day”, Israel’s annual show of strength in East Jerusalem.

He claimed that Mr Trump had disproved the “lies” promoted by the United Nations cultural body, Unesco, when it voted this month to re-state that Jerusalem is occupied.

In truth, it was Mr Netanyahu who indulged in gross mendacity, claiming that East Jerusalem had been “desolate” and “neglected” before its occupation. Israel had “redeemed” the city, he said, while Al Aqsa mosque would “always remain under Israeli sovereignty”.

His supporters tried to give that claim concrete expression by staging the largest-ever march through the Old City on Jerusalem Day. Palestinians were forced into hiding or fled early as police allowed 60,000 Jewish ultra-nationalists to besiege the heart of East Jerusalem.

In a sign of the power balance in Israel, a small group of 50 left-wing Jews – many from the US – linked arms to try to block the march at the Old City’s entrance. Footage showed police brutally arresting them, grabbing them in chokeholds and breaking one woman’s arm.

Jerusalem is the most intractable of the final-status issues set out in the Oslo process. Those expecting miracles of Mr Trump are going to be disappointed. His commitment to pressuring Mr Netanyahu is weak, while the Israeli prime minister’s commitment to making concessions is non-existent.

Whether Mr Trump signs the waiver or not on Thursday, all indications are that the US president – faced with domestic pressures and an intransigent Israeli government – is going nowhere with his “ultimate deal”.

The only real question to be decided on Thursday is whether Mr Trump prefers to take the fast or protracted route to failure.