The US should, certainly, make it clear that we’ll cut off the spigot if there is any new construction of the settlements, at all.
However, I disagree that they should be dismantled (if by that you mean literally taken apart), or even evacuated, until it’s part of an actual peace deal. Unilateral withdrawal will not necessarily lead to peace, but withdrawal tied to peace offers is a much, much better carrot. For the record, I don’t think that the PA will ever get a deal that’s more generous than Clinton’s Bridging Proposal. I think that’s a pretty good target of what to shoot for.
However, Jerusalem as an international city simply wouldn’t fly. To begin with, who administrates it? How are they chosen? What process is there to remove the regime governing it, and elect a new one? Israel has real reason, for instance, not to accept the UN as the arbiter of anything. And seeing what happened the last time an Arab regime was in control of Jerusalem, I’d wager not many folks are too keen to try that again.
There’s also the fact that, as long as there’s peace, there should be absolutely no problem for Christians, Muslims, Jews and anybody else who want to visit the holy sites in Jerusalem.
With that being said:
Camp David in 2000, and especially the Bridging Proposal tend to suggest that they’ve already accepted that. Or at least, they had before the Palestinian response to their offer was the second Intifada.
Why is the current setup not conducive to success? Both times I’ve been to the Dome of the Rock, for instance, there were plenty of Muslims praying there in perfect peace and security. If terrorism was a thing of the past (and with it, blockaes and checkpoints), why would Israeli control over the holy sites be a problem at all?